By Rob Silverblatt

Advances are changing the way tech-savvy investors explore the market

When start-up company kaChing began accepting clients last year, its capital base was as small as its aspirations were grandiose. With just over $2 million in investments under management, the company was looking to challenge the $11 trillion U.S. mutual fund industry.

In doing so, kaChing's founders made the rather bold claim that they had unveiled a "new way to invest." Equipped with this slogan, kaChing kicked off its attempts to lure investors away from funds and to its website, where users can monitor and even copy the portfolios of a select group of experts.

Several years ago, a venture capital company trying to take on the fund industry might have been ridiculed for tilting at windmills. But in an era in which the Internet is steadily uprooting traditional business models, David-versus-Goliath stories like kaChing's are becoming increasingly common. Meanwhile, as they angle to keep their advantage over the crop of newcomers, the traditional players have responded with advances of their own. Here's a look at some technologies that have emerged in this climate:


There's not a whole lot that kaChing CEO Andy Rachleff likes about the mutual fund industry. But more than anything else, he faults fund companies for failing to promote transparency. His solution: a social networking site that serves as an alternative to mutual funds. To that end, kaChing invites self-proclaimed investing experts to create online profiles in which they publicly disclose information about their strategies and justify their trading patterns. KaChing, which is registered with the Securities and Exchange Commission as an investment adviser, then evaluates the would-be experts and dubs the best ones "geniuses."

As a kaChing user, you can question these "geniuses" free of charge. If you like what you hear, you can pay to mirror the portfolio of whichever expert you choose. When that particular investor makes a trade, kaChing will automatically make the same one for you. Since you can have either more or less invested in your kaChing portfolio than the investor you are tracking, the mirroring is done on a prorated basis. Of the management and trading fees kaChing collects from you (the average expense ratio on the site is about 1.4 percent), 75 percent goes to the expert you are copying.


When is it appropriate to rebalance a portfolio? This question, a close companion of the ever popular "How high is too high?" dilemma, has plagued investors for years, largely because there is no right answer. But if you're open to suggestions, the company MarketRiders wants to send them directly to your inbox.

For $100 per year, users can build ETF portfolios on the site and receive E-mail alerts when MarketRiders' software signals that it's time to rebalance. Under normal market conditions, the software will call for rebalancing about four times each year.

To some, this could seem excessive. "How often investors should rebalance is actually one of the great debates in the industry and in academic circles," says Scott Burns, Morningstar's director of ETF analysis. "There's one argument that says if you rebalance too frequently, you end up missing momentum." If you subscribe to that theory, you can change the site's default settings so that you get fewer rebalancing alerts.


Now that people seem to update their Twitter accounts every time they sneeze, this site has stepped in to give investors the chance to say -- in 140 characters or fewer -- what's on their minds.

On the site, which works exactly like Twitter, investors can tweet about what they are buying, stories they are reading, and anything in between. In the process, professional traders can maintain a sense of community even as the rise of online investing causes them to abandon physical trading rooms. The site is also a "learning room" for relative newcomers who are interested in monitoring and contributing to StockTwits' electronic marketplace of investing ideas, says CEO Howard Lindzon. Since posts are very brief, the site is particularly useful for investors who don't have a lot of time on their hands.

Covestor Investment Management

This service has a lot in common with kaChing. On CVIM's site, you can browse through model investors' portfolios, and if you find one you like, you can set up an account. Afterward, whenever the model investor makes a trade, CVIM will make the same one for you. In return, you pay a management fee, which CVIM shares with the investor you are tracking.

Though kaChing and CVIM appear to be very similar, there are some telling differences. As the Internet continues to empower the common consumer, the new dynamics have raised a number of troubling questions. Perhaps the stickiest of them is: What checks should be placed on the democratization of investing? As investors seize control of their portfolios away from traditional money managers, to what extent should the guardians of the new Internet models protect their clients from themselves?

KaChing has taken a bit of a conservative stance -- the site allows clients to automatically mirror the trades only of those investors whom it labels "geniuses." CVIM, on the other hand, has come down on the side of expanding its clients' choices. "Ultimately, there isn't one best [strategy]," says CVIM President Perry Blacher. "There isn't one top investor." With that in mind, CVIM, for the most part, only requires transparency and a proven track record from investors who want to post their portfolios on the company's site. CVIM's clients can then put money in any of the portfolios they choose.

Vanguard's iPhone app

Apple prides itself on the claim that its iPhones have "an app for just about anything." With a relatively new application from Vanguard, consumers can now add mutual funds to the list. The free app, which was introduced last year, made Vanguard the first mutual fund company to get real estate on iPhones.

Users who download the application can access their Vanguard accounts, view their recent transactions, read market news, listen to podcasts, and watch videos. This packaging of information hardly changes industry dynamics, but it certainly makes mutual fund investing more convenient and helps Vanguard keep pace as upstarts look to lure away fund companies' clients.

Apart from Vanguard's app, there are plenty of others out there for investors looking for information on the go. For example, Forbes, Morningstar, Bloomberg, and scores of other companies offer investment-related apps.


Investing - Technology Opens Doors for Investors

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