investing

The Securities & Exchange Commission (the “SEC”) recently released an educational bulletin to help investors make informed financial decisions and avoid common scams. Its 13 points include:

1. Check the investment professional’s background.
   Details about experience and qualifications are available through the Investment Adviser Public Disclosure website and FINRA BrokerCheck.
2. Be mindful of fees associated with buying, owning, and selling an investment product.
   Expenses vary from product to product, and even small differences in these costs can translate into large differences in earnings over time. An investment with high costs must perform better than a low-cost investment to generate the same returns.
3. Diversification can help reduce the overall risk of an investment portfolio.
   By picking the right mix, you may be able to limit losses and reduce the fluctuations of investment returns without sacrificing too much in potential gains. Some investors find that it is easier to achieve diversification through ownership of mutual funds or exchange-traded funds rather than through ownership of individual stocks or bonds.
4. Paying off high-interest debt may be the best “investment” strategy.
   Few investments pay off as well as, or with less risk than, eliminating high-interest debt on credit cards or other loans.
5. Promises of high returns, with little or no associated risk, are classic warning signs of fraud.
   Every investment carries some degree of risk and the potential for greater returns comes with greater risk. Ignore the so-called “can’t miss” investment opportunities or those promising guaranteed returns or, better yet, report them to the SEC.
6. Any offer or sale of securities must be either registered with the SEC or exempt from registration.
   Otherwise, it is illegal. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
7. Do not invest in a company about which little or no information is publicly available.
   Always check whether an offering is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.
8. Investing heavily in shares of any individual stock can be risky.
   In particular, think twice before investing heavily in shares of your employer’s stock. If the value declines significantly, or the company goes bankrupt, you may lose money and there’s a chance you might lose your job, too.
9. Active trading and some other common investing behaviors actually undermine investment performance.
   According to researchers, other common investing mistakes include focusing on past performance, favoring investments from your own country, region, state or company, and holding on to losing investments for too long and selling winning investments too soon.
10. Con-artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims.
    Common tactics include phantom riches (dangling the prospect of wealth, enticing with something you want but can’t have), source credibility (trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience), social consensus (leading you to believe that other savvy investors have already invested), reciprocity (offering to do a small favor for you in return for a big favor) and scarcity (creating a false sense of urgency by claiming limited supply).
11. Some investments provide tax advantages.
    For example, employer-sponsored retirement plans and individual retirement accounts generally provide tax advantages for retirement savings, and 529 college savings plans also offer tax benefits.
12. Mutual funds, like other investments, are not guaranteed or insured by the FDIC or any other government agency.
    This is true even if you buy through a bank and the fund carries the bank’s name.
13. The key to avoiding investment fraud is using independent information to evaluate financial opportunities.
    Many investors may have avoided trouble and losses if they had asked questions from the start and verified the answers with sources outside of their family, community, or group. Whether checking the background of an investment professional, researching an investment, or learning about new products or scams, unbiased information is a significant advantage for investing wisely.