The Internet has made our lives easier in so many ways—we can make airline and car rental reservations in minutes, get the news from local papers around the country, or check on all the sports scores in great detail. Our kids in college are now able to ask us for money at any time of the night or day.
As that last example shows, in some areas of modern life, the Internet has perhaps made things a bit too easy. Investing might fall into that category. A generation ago, if you wanted to buy a stock, you would have had to run the transaction past your broker, who would then have made some calls to execute the trade. But now, thanks to the Web, you can make that trade in seconds with just a few keystrokes and with no one looking over your shoulder. If you read the ads in the glossy financial magazines, you know there are plenty of people out there willing to help you make stock trades all day long.
The largest problem with Internet trading is that if you're investing for the Big Picture, with long-term goals in mind, you don't need the capability to make stock purchases every five minutes. You don't need the ability to check your portfolio every five minutes, either. Quick and easy stock trades are the antithesis of a prudent, long-term financial strategy.
A WORLD OF DATA
|Instant information, not instant action.
In our recent newsletters, we've been discussing the Big Picture approach to investing. Where does the Internet fit within the Big Picture? As a source of information, the Internet is certainly hard to beat. In an arena like stock and bond pricing, where the information is literally changing all the time, you can get continuous data on the prices of your investments or your potential investments. There's a certain value to having that kind of instant updating and a certain addictive quality to watching your portfolio tick up and down and up again over the course of a day.
But if you're a serious investor, with long-term financial goals and a carefully plotted strategy designed to meet them, your time horizons are not the next 20 minutes but closer to the next 20 years. If, to take one example, you have invested in the Vanguard Index 500, you probably plan to hold on to it for years, if not decades. Whatever happens to its price today, or even this week, will in the long run be irrelevant.
That's not to say that there's no good use for the Internet when it comes to your financial plans. It's a great way to disseminate information on financial strategies and ideas or to find more background on topics you'd like to learn about. It's a great way to gather a variety of opinions on almost any subject. The most important thing to remember, though, is that you want instant information, not instant action.
In a way, the instant gratification provided by the Internet is the opposite of what we've been talking about as the Big Picture approach to financial planning. While the breadth of information available on the Web fits into that worldview, the constant activity represents the complete opposite.
|Financial strategies for
THE LONG-TERM VIEW
It's important to keep in mind that your financial goals are long term, and the strategies we employ to meet them are long term too. We don't believe in activity for activity's sake or in making investments without a compelling reason for doing so. That's just not our Big Picture approach.