Saving and Investing: Avoiding Problems
How can I avoid problems?
Choosing someone to help you with your investments is one of the most important investment decisions you will ever make. While most investment professionals are honest and hardworking, you must watch out for those few unscrupulous individuals. They can make your life's savings disappear in an instant.
Securities regulators and law enforcement officials can and do catch these criminals. However, putting them in jail doesn't always get your money back. Too often, the money is gone. The good news is that you can avoid potential problems by protecting yourself.
Say you've already met with several investment professionals based on recommendations from friends and others you trust, and you've found someone who clearly understands your investment objectives. Before you hire this person, you still have more homework.
Make sure the investment professional and their firm are registered with the U.S. Securities and Exchange Commission (SEC) and licensed to do business in your state. Find out from your state's securities regulator whether or not the investment professional or their firm has ever been disciplined or whether or not they have any complaints against them. You'll find contact information for securities regulators in the U.S. by visiting the website of the North American Securities Administrators Association (NASAA) at Link opens in a new windowhttps://www.nasaa.org or by calling 202- 737-0900.
You should also find out as much as you can about any investments that your investment professional recommends. First, make sure the investments are registered. Keep in mind, however, the mere fact that a company has registered and files reports with the SEC doesn't guarantee that the company will be a good investment.
Likewise, the fact that a company hasn't registered and doesn't file reports with the SEC doesn't mean the company is a fraud. Still, you may be asking for serious losses if, for instance, you invest in a small, thinly traded company that isn't widely known solely on the basis of what you may have read online. One simple phone call to your state regulator could prevent you from squandering your money on a scam.
Be wary of promises of quick profits, offers to share "inside information," and pressure to invest before you have an opportunity to investigate. These are all warning signs of fraud.
Ask your investment professional for written materials and prospectuses, and read them before you invest. If you have questions, now is the time to ask:
- How will the investment make money?
- How is this investment consistent with your investment goals?
- What must happen for the investment to increase in value?
- What are the risks?
- Where can you get more information?
Finally, it's always a good idea to write down everything your investment professional tells you. Accurate notes will come in handy if ever there's a problem. The SEC has a form for taking notes during conversations with an investment professional at Link opens in a new windowhttps://www.sec.gov/reportspubs/investor-publications/complaintcallformhtm.html.
Some investments make money. Others lose money. That's natural, and that's why you need a diversified portfolio to minimize your risk. However, if you lose money because you've been cheated, that's not natural; that's a problem.
What if I have a problem?
Sometimes all it takes is a simple phone call to your investment professional to resolve a problem. Maybe there was an honest mistake that can be corrected. If talking to the investment professional doesn't resolve the problem, talk to the firm's manager, and write a letter to confirm your conversation. If that doesn't lead to a resolution, you may have to initiate private legal action. You may need to take action quickly, because legal time limits for doing so vary. Your local bar association can provide referrals for attorneys who specialize in securities law.
At the same time, call or write the SEC, and let them know what the problem was. Investor complaints are very important to the SEC. You may think you're the only one experiencing a problem, but typically, you're not alone. Sometimes it takes only one investor's complaint to trigger an investigation that exposes a bad broker or an illegal scheme. Complaints can be filed online by going to Link opens in a new windowhttps://www.sec.gov/complaint/select.
Final Tips
In summary, consider a few additional pieces of advice:
- Keep in touch with the SEC.
- The most important thing to do to learn about investing is to get started.
- Remember to ask questions as you make your investment decisions.
- Be sure to find out if the person is licensed to sell investments and if the investment is registered with the SEC.
- There's a lot to learn about saving and investing, and you'll be learning as you go and over your lifetime. Please visit the SEC website at Link opens in a new windowhttps://www.sec.gov for more information about how to save and invest wisely.
U.S. Securities and Exchange Commission (SEC). (n.d.). How can I protect myself? & Keep in touch with us [Excerpt] (pp. 25–28). In Saving and investing: A roadmap to your financial security through saving and investing (SEC Pub. No. 009 [06/11]). Retrieved June 21, 2024, from https://www.sec.gov