The internet is one of the most powerful inventions ever. Information is freely available, and you can get anything and everything you want.
Yet, the internet can also be a dangerous place for investors. Here’s why:
Online fraud
As the internet becomes more sophisticated, so does online fraud. Emails offering you a great cash prize if you would just deposit $5,000 into a stranger’s bank account have been around for years and most people now know to avoid them. Since then, scammers have made their approach more plausible and convincing, and many innocent and intelligent investors have been fooled. From identity theft to real-sounding but false emails claiming to be from your bank, online scams go on every single day. To learn how to protect yourself from internet fraud, click here.
Do they really know what they’re talking about?
If you’re good at designing websites, you can make anything look appealing and interesting. But is what’s written on an attractive website always accurate?
Many online commentators may sound as if they know what they’re talking about. But if you dig a little deeper, you’ll soon discover that they possess about as much financial knowledge as the taxi driver who’s just dying to tell you about a stock pick while you’re on the road. No matter how well designed this so-called financial pundit’s website is, if you follow his “advice” you will soon be heading towards financial disaster.
Too much information
The vast availability of knowledge on the internet is not always a good thing. There’s so much information that you can get totally overwhelmed. Even if what you read is accurate, how do you know if it’s suitable for you in your specific situation? Not every piece of financial advice is appropriate for every individual investor. Sometimes, you will read conflicting pieces of advice. Which one should you follow? Very often, investors will either overreact and make a move unnecessarily or panic and do nothing when action would have been better, simply as a result of reading some piece of shocking advice on line.
How to avoid the internet’s dangerous advice
This does not mean that you should never read anything online. You can still derive a lot of positive benefit from the internet if you can learn how to understand the nature of what you’re reading a lot better. Follow these three tactics and you should be able to make the right choices about what you read:
- Don’t be too trusting. Never reply to emails asking for account information, especially if they are unsolicited, even if they are supposedly from the bank. Keep on top of your bank and brokerage statements to make sure that no one has hacked into your accounts. And never click on any links that someone emails you (unless you have solicited this information or they have called you first and asked you if you want to receive it). Avoid any emails advertising lottery wins or prizes or that offer you some great deal you can only claim if you send in personal details and information first. Remember that if something is too good to be true, it probably is. By following these simple rules, you should be able to avoid internet fraud.
- This level of caution should extend to any financial advice websites. Attractive images and a slick website are no indicator of real knowledge. Find out if the commentator has any real experience or certification, such as a CFP mark.
- Don’t get sucked into the maelstrom of internet information. Even if what you’ve read is accurate and sounds very convincing, don’t let your emotions govern your decisions. Stick to your financial plan, just like a chess player follows her strategy. Financial decisions should be based on logic and fact, not on emotion.
Be wise, use caution, and keep your investments safe.
Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You A Grandmaster of Investing, is an avid chess fan, international investment advisor and Certified Financial Planner (CFP®).
