Departments: Money
Interested in Stocks? Try a New Service on the World Wide Web

Q: What’s the best way for an investor to get started in stocks?

A: In the past, I’ve always recommended automatic investment plans with mutual fund companies. This is a plan where the company waives an initial minimum investment for those who are willing to make small, regular investments every month or every quarter.

They’re still a good deal. But as of December ’99, there is a new Web-based service that offers a similar option for buying stocks at ShareBuilder.com.

Automatic investment plans make the best sense for most investors because they allow us to save money by observing the old rule of “pay yourself first” and then to put that money to work in the stock market.

Investors can already do this by buying stock directly from companies using the popular direct purchase plans or dividend reinvestment plans, or DRIPs.

There are a couple of drawbacks to those plans, though. First, many of the most popular technology companies do not offer DRIPs. Second, heavy fees are beginning to creep into some of the plans. Third, bookkeeping can be a nightmare.

Direct investment programs are paper-based, putting the burden of record keeping on the investor. That can make keeping track of costs for tax purposes an onerous task. ShareBuilder consolidates all your statements and keeps track of cost basis automatically.

Another criticism of direct plans is that shares are purchased just once a month. ShareBuilder will purchase stocks once a week. “We’re mimicking all the advantages of direct plans and DRIPS but eliminating all the negatives,” says Brian Ratzliff, vice president of marketing and business development. “It’s really only the online world that makes it possible to do this.”

For just $2 per transaction ($1 for kids), an investor can set up an automatic investment program to buy stocks like AOL, Cisco Systems, Microsoft, General Motors, General Electric, AT&T, and Dell Computer. For a list of the 2,000 stocks available, go to the ShareBuilder.com Web site. There is no minimum to get started.

ShareBuilder is a new Web site developed by the folks at Netstock.com, which offers free research on the 1,600 companies that offer DRIPs and direct stock purchase plans.

Netstock also offers an “enrollment wizard,” which allows the 200,000 people who use the Web site to enroll in direct stock purchase plans from those companies that offer them. Netstock gets its revenue from the companies that offer the plans, according to Ratzliff.

But ShareBuilder is a totally different program. The stocks that are offered are not necessarily those that have direct investment programs. Instead, the site developers put together a list of 2,000 of the largest and most popular stocks on the Big Board and the NASDAQ.

ShareBuilder does offer real-time sell- and buy-options for $19.95 a trade. But that is not what the service is designed for. “This is about saving, not about trading,” Ratzliff says.

Q: My mother says I need disability insurance. I’m only 30 years old and healthy. What do you think?

A: Some employers offer good disability policies as part of the benefits package. So you probably need to buy one for yourself. Consider what is available to you and make sure you have protection that will cover you to retirement age.

Q: I did some computer consulting last summer and earned $12,000. Is this money eligible for a retirement account?

A: It certainly is. You are eligible to put up to $2,000 of that money in a regular IRA or a Roth IRA. You have until April 15 to open and fund your account.

How to choose? The regular IRA provides a tax deduction for your contribution as well as tax deferral on your earnings. You pay tax on everything when you pull it out in retirement.

There is no current tax deduction for the Roth. But the money that you put into a Roth is never taxed again, making it an extremely attractive retirement saving vehicle.

Eligibility for the Roth IRA is phased out for single taxpayers with incomes between $95,000 and $110,000 and for married taxpayers with incomes between $150,000 and $160,000.

--Mary Rowland

Mary Rowland is a regular contributor to several major financial planning magazines.

Thrifty Educator

Each month, NEA members offer their best ideas for saving money at the workplace. This month’s tips come from Stephanie Swonger, an elementary teacher in Orange Park, Florida.

“I’ve found a great use for those little plastic animals. As part of our unit on habitats and food chains, my third graders will have the opportunity to do a unique project this year because I received a $500 Louis T. Camp Creative Teaching Grant from The Florida Council on Elementary Education!

“Students will research a habitat of their choice, choose from an assortment of small, plastic animals to create a food chain, and then create a small-scale model of the habitat. Each project will be accompanied by a written report, and the students will give a presentation to the class.

“Though I received funding, this project can be done with many odds and ends. A local craft store even donated silk flower "floor scraps"! When I did this last year the students came up with some really neat ideas for their meadow gardens, deep forest caves, and tropical lagoons. One student even used sparkling mint toothpaste over small pebbles to create a realistic river bed! They are so proud when they put these projects on display in the Media Center, and some of my shyest students were the first to volunteer to stand in front of the class to present! Thank you, Louis T. Camp and The Florida Council on Elementary Education!”

Heads Up from NEA Member Benefits

In today’s volatile economic climate, you are wise to worry now about adequately funding for retirement later. But what about your parents? If they are retired already, are they struggling to survive on a fixed income? Do they have enough to maintain a comfortable lifestyle? Or perhaps you’re debating whether to sacrifice your children’s education fund to help supplement your parent’s income.

There is an answer—a reverse mortgage through the NEA Home Financing Program®. Now NEA members and their families can apply for a reverse mortgage (an FHA Home Equity Conversion Mortgage), which is backed by HUD.

A reverse mortgage is a loan that allows homeowners to convert some of the equity in their homes into cash, while retaining homeownership. Rather than making a payment to the lender each month as with a traditional mortgage, with a reverse mortgage the lender pays you. To be eligible, the homeowner must be at least 62 years old and own the home outright, or carry a very low balance on the traditional mortgage. You don’t have to repay a reverse mortgage until you sell the home, vacate the property for other reasons, or die.

As an NEA member you or your parents get a $150 rebate after the loan goes through. For more information on reverse mortgages through the NEA Home Financing Program, call 800-NEA-4-YOU (800-632-4968) to speak with an experienced mortgage representative.