Savings Systems Need Reviewing

In September 2000, I recommended that families use automatic payment systems not only to pay their bills but also to fund their savings and investment plans. To some extent, that advice still stands, but based on a recent analysis of my own investment plans, it's also clear that you have to periodically take a close look at how you're using services that let you invest on auto-pilot.

When I wrote that column, the Dow was above 11,000, the Nasdaq was nearly 5,000 and there was a consensus that the market was best for your money, your kids' college education and your retirement. Services like Paytrust and ShareBuilder made that easy.

Paytrust is a bill presentment and payment service that I use to handle virtually all my bills. I've configured it to pay my mortgage on the first of every month and, when my other bills come in -- such as utilities or credit cards -- they are sent to Paytrust's service center in South Dakota and presented to me online via a secure Web site. I have the option of reviewing the bill and paying whatever amount I want or I can configure Paytrust to pay the entire balance or just the minimum balance.

In addition to paying bills, I've also programmed Paytrust to make investments for my wife and me and our children's college funds. I've done this simply by having it send checks to specific account numbers in financial institutions on a monthly basis. You can also do the same with Quicken Bill Pay, CheckFree or the automatic bill payment services offered by most banks.

The other service, ShareBuilder, is a clever way to buy stocks or mutual funds on a regular basis. Our family has had an account for a couple of years and, until sometime in 2001, it was serving us very well.

Unlike a regular brokerage service, ShareBuilder lets you buy fractions of shares, so instead of having to buy a specific number of shares, we could specify a dollar amount and buy partial shares. Unlike most investment services, you don't buy in real time, but on a weekly or monthly basis. The fees, which start out at $4 a transaction or $12 monthly for an unlimited number of transactions, are a lot lower than most other brokerages.

Although ShareBuilder provides the tools for investors to make changes whenever they want, the whole idea behind the service is to make regular payments into your account. The strategy, called "dollar cost averaging," means that you get more shares for your money when prices are low and fewer shares when prices are high. Over time, it's supposed to result in a nice little nest egg, but these days, the operative word is "little."

I have no complaints about these services. ShareBuilder works exactly as advertised and Paytrust has done exactly what I programmed it to do. Thanks to these services my investment plan has been on auto-pilot. Every month for the past couple of years, I've been doing exactly what the financial experts told me to do: investing in my family's future by pouring money into a variety of stocks, mutual funds and those hybrid tracking stocks like "QQQ" (the Nasdaq 100), "SPY" (the S&P 500) and DIA (the Dow Jones 30).

I don't need to tell you what's happened to those investments. It was a great plan a couple of years ago but it's now a money pit. Of course, the market could turn around and those shares that I've bought in recent months could eventually be worth far more than I paid for them, but my daughter, Katherine, starts college in September and we need some of that money now. Sadly, her college fund is worth a lot less than it was two years ago and each dollar that I put into it over the past two years is now worth considerably less than $1.

So, this week, I took another look at how I have these accounts configured and made some radical changes to our longstanding investment plans. I'm not going to advise you how to invest your money. I'll leave that to the financial pundits, though by now it should be obvious that their crystal balls aren't all that clear either. What I am saying is that you need to pay close attention. Having a plane fly on auto-pilot is only a great idea when it's going in the right direction. My auto-pilot has been taking me south when I wanted to fly north.

And while you're looking at your automatic payment systems, don't stop with your investments. Look at your credit card bills, utility statements, phone bills and other charges. Having automated systems is a convenient way to pay these bills and avoid late charges, but it also makes it very easy to simply forget them. Companies do make billing errors but you'll never know if you don't look at the bills.

Automation is great, but vigilance is still necessary.

A syndicated technology columnist for nearly two decades, Larry Magid serves as on air Technology Analyst for CBS Radio News. His technology reports can be heard several times a week on the CBS Radio Network. Magid is the author of several books including "The Little PC Book."

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