You can ask these basic questions before you invest your hard-earned cash, regardless of whether you are a novice investor or an experienced investor.
Question 1: Does the seller have a license?
Research shows that con-artists are experts at the art of persuasion, often using a variety of influence tactics tailored to the vulnerabilities of their victims. Smart investors do their research before promoting investment opportunities.
- Researching brokers: Details on a broker’s background and qualifications are available for free on FINRA’s BrokerCheck website.
- Researching investment advisers: The Investment Adviser Public Disclosure website provides information about investment adviser firms registered with the SEC and most state-registered investment adviser firms.
- Researching SEC actions: The SEC Action Lookup – Individuals allows you to look up information about certain individuals who have been named as defendants in SEC federal court actions or respondents in SEC administrative proceedings.
Call the SEC’s investor assistance hotline at 800.732-0330 if you have questions about the background of investment professionals or are unsure who to contact.
Question 2: Is your investment registered?
Either registration is required or exemptions apply to any offer or sale of securities. It is vital that investors have access to the key information regarding the management of the company, its products and finances.
Smart investors always check whether an investment 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.
Question 3: What are the risks and the potential rewards?
Higher returns come with greater risk. This crucial tradeoff between reward and risk can help you distinguish legitimate opportunities from illegal ones.
Higher risk investments may provide higher potential returns but could also expose you to greater investment loss. Remember that every investment comes with some risk. No legitimate investment can offer the best of both.
Many investment scams promise high returns and little risk. Ignore these so-called opportunities or, better yet, report them to the SEC.
Question 4: Are you able to understand the investment?
This rule of thumb is followed by many successful investors: Never invest in anything you don’t fully understand . Always read the disclosure and prospectus before investing. Ask a trusted financial professional if you don’t get the investment or how it will benefit you. You should reconsider investing if you’re still not clear.
Question 5: To whom can you turn?
Unbiased information can make it easier to invest wisely, whether you are looking for an investment professional or researching an investment. Use the tools and information on the websites of securities regulators. For any questions or concerns regarding an investment, please contact the SEC or FINRA or your state’s securities regulator.