I logged on to this new Web site, answered six yes-or-no questions about my “financial status”–like, yes, I do have health insurance–and picked a goal, retirement in this case.
Next came fill-in-the-blank questions as to how much money I have now and where it is invested, and, if I wanted to go through it, a 10-part tutorial on retirement planning.
Next, 15 more questions on such things as my age, sex, investment experience, salary, years to retirement, outlook for inflation, risk tolerance and how much I want to have, and for how long, by the time I quit work.
Click. Click. Click. Done. And with the last click, up popped on the screen a pie chart showing where I should put my money–55 percent stocks, and 45 percent bonds in my case.
And, as I clicked on each slice of the pie, I could scroll down a list of specific stocks and mutual funds from which to choose.
I had just entered the new world of personalized on-line investment advice, bought to me by Personal Wealth, the new site by Standard & Poor’s Corp. at http://www.personalwealth.com.
Not that the idea is new. Investment Strategies Network, a company in Menlo Park, Calif., has been selling investment advice on-line since September at (http://www.isnetwork.com). The firm, a registered investment adviser in 14 states, charges $149 a year to recommend mutual funds based on your answers to a questionnaire.
Another California group, 401(k) Forum, in San Francisco, contracts with companies to offer personalized advice to employees in 401(k) and similar retirement plans.
But the site by S&P, which went live in January, is the first entry in the personalized-advice-for-pay-on-the-Web business by a major player in the financial services industry.
The company is widely known by investors for its stock reports and the name it lends to major market indexes, such as the S&P 500.
“This is the jump we wanted to make,” said John Fitzgerald, president of S&P’s Consumer Markets. More than two years of research by the company showed that investors wanted not just information but advice they could act on, he said.
The result: Personalized investment recommendations, buy, sell and hold alerts, and live market commentary, free for the first 30 days and $9.95 a month afterward.
My assessment, after trying out the service for a couple of weeks, is that Personal Wealth offers tremendous amounts of information and solid investment ideas backed up by extensive, substantive research. The tutorials and other areas offer generally good advice, though by necessity much of it is rule-of-thumb.
But the site is nowhere near a substitute for a personal financial adviser sitting with you face-to-face–and there is always the danger that some users may mistake it as such.
“I think that is a legitimate criticism,” acknowledged Chip Norton, managing editor of Personal Wealth. “But I don’t think we purport to do the whole thing. We just try to guide them through the investment portion,” he added. “We are not doing estate planning and we are not doing tax planning.”
Many financial planners would find a major flaw right there. Investment advice that looks good on paper–or on a computer screen–may not be the best without taking tax and estate planning into account.
And the investment recommendations are going to be only as good as the information users give about themselves.
Sometimes it’s easy to delude ourselves. For example, two questions in the “financial planner” section deal directly with risk tolerance. One asks us to describe our investment style, the other what we’d do if our investment fell so much in value. I wonder how many of us will answer we are investing for the long term because we think that’s the “right” thing to say.
The questionnaire gets at our ability to tolerate risk in other ways: by asking about our investment experience, how long we have to go before we retire, what other sources of retirement income we may have. It’s the combination of all our answers that produces one of “several dozen” recommended portfolios, Norton said.
I had a co-worker use Personal Wealth for her own retirement plan. She is willing to take the same amount of risk as I do, but she probably won’t retire until 15 years after I do.
Her recommended retirement portfolio was 100 percent in stocks and stock mutual funds, divided 60 percent small and midsize companies, 30 percent large companies and 10 percent international. Personal Wealth will tell you to put the first $50,000 in mutual funds so you can diversify, then it will start suggesting individual stocks.
By clicking on each ticker symbol, you get extensive analysis and research on the particular company or fund.
To me that’s the best part of the service, the ability to tap into the research expertise of S&P.
“We can be a great tool for the individual investor who is doing a lot of his or her own research,” Norton said.
I have no problem with that, or suggesting you try the service for free for 30 days. To follow the recommendations blindly, I do have a problem with that.
