Investing: Consumer Tips
If you have a financial goal in mind, such as saving for retirement, paying for college, or buying a house, then you may decide to invest your money to earn enough to fund your goals. Before you invest, make sure you have answers to all of these questions:
- How quickly can you get your money back? Stocks, bonds, and shares in mutual funds usually can be sold at any time, but there is no guarantee you will get back all the money you invested. Other investments, such as limited partnerships, certificates of deposit (CDs), or individual retirement accounts (IRAs), often restrict your ability to cash out your holdings.
- What can you expect to earn on your money? While bonds generally promise a fixed return, earnings on most other securities go up and down with market changes. Keep in mind that just because an investment has done well in the past, there is no guarantee it will do well in the future.
- What type of earnings can you expect? Will you get income in the form of interest, dividends, or rent? Some investments, such as stocks and real estate, have the potential for earnings and growth in value. What is the potential for earnings over time?
- How much risk is involved? With any investment, there is always the risk that you will not get your money back or the earnings promised. There is usually a trade-off between risk and reward—the higher the potential return, the greater the risk. While the federal government backs U.S. Treasury securities, it does not protect against loss on any other investments.
- Are your investments diversified? Some investments perform better than others in certain situations. For example, when interest rates go up, bond prices tend to go down. One industry may struggle while another prospers. Putting your money in a variety of investment options can reduce your risk.
- Are there any tax advantages to a particular investment? U.S. savings bonds are exempt from state and local taxes. Municipal bonds are exempt from federal income tax and, sometimes, state income tax as well. Tax-deferred investments for special goals, such as paying for college and retirement, let you postpone or even avoid paying income taxes.
Check out the Securities and Exchange Commission's (SEC's) website, Link opens in a new windowhttps://www.investor.gov/, for more information about investing. Be sure to note specific tips at Link opens in a new windowhttps://www.investor.gov/introduction-investing/basics/save-invest. The SEC requires public companies to disclose financial and other information to help you make sound decisions. View the text of these files at Link opens in a new windowhttps://www.sec.gov/edgar.shtml. Contact the SEC's Investor Information Service at 1-800-732-0330 to ask your investment-related questions, get alerts, and learn how to file a complaint.
The Financial Industry Regulatory Authority (FINRA) also provides up-to-date market data and information for a wide range of stocks, bonds, mutual funds, and other securities through its Market Data Center at Link opens in a new windowhttp://finra-markets.morningstar.com/MarketData/Default.jsp.
Some companies rate the financial condition of corporations and municipalities issuing bonds. Their ratings are available online and at many public libraries. For ratings of mutual funds, consult personal finance magazines or websites.
Investing Scams
Be aware of these common signs of investment scams:
- Scammers offer free lunches or seminars, posing as financial planners to pitch appealing investment offers.
- Be suspicious of offers for high or guaranteed profits.
- Sales pitches saying the investment is "risk-free" are scams; no investment is completely risk-free.
- Scammers pressure you to invest immediately or give you limited opportunities to invest.
- Pyramid schemes are where investors make money from recruiting more investors, rather than from sales or profits from a stock or product.
Take steps to protect yourself:
- Research investment opportunities and investment professionals.
- Get all details of an investment in writing.
- For more information or to file a complaint, contact your state securities regulator (Link opens in a new windowhttp://www.nasaa.org/about-us/contact-us/contact-your-regulator/), The Securities and Exchange Commission (Link opens in a new windowhttps://www.sec.gov/), or the Financial Industry Regulatory Authority (Link opens in a new windowhttp://www.finra.org/).
U.S. General Services Administration (GSA). (Revised 2017). Investing (p. 35) & Investing scams (p. 37). In Consumer action handbook. Retrieved March 8, 2018, from https://www.usa.gov/