Whether you’re a first-time investor or have been investing for many years, there is some basic information you should know. Here are 10 tips that may help you make informed financial decisions and avoid common scams.

  1. Checking the background of an investment professional is easy and free. Details on an investment professional’s background and qualifications are available through the SEC’s Investor.gov website.
  2. It can be costly to ignore the 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.
  3. Diversification can help reduce the overall risk of an investment portfolio. By picking the right mix of investments, you may be able to limit your losses and reduce the fluctuations of your investment returns without sacrificing too much in potential gains.
  4. Promises of high returns, with little or no associated risk, are classic warning signs for fraud. Every investment carries some degree of risk and the potential for greater returns comes with greater risk. Ignore so-called "can’t miss" investment opportunities or those promising "guaranteed returns" or, better yet, report them to the SEC.
  5. Any offer or sale of securities must be either registered with the SEC or exempt from registration. Otherwise, it is illegal. SEC registration is important because it provides investors access to key information about the company’s management, products, services, and finances. 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.
  6. It can be risky to invest heavily in shares of any individual stock. In particular, you should think twice before investing heavily in shares of your employer's stock. If the value of your employer's shares declines significantly, or the company goes bankrupt, you may lose money.
  7. 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. You should consult your tax adviser or visit the IRS website for questions about the tax impact of your investments.
  8. 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 a mutual fund through a bank and the fund carries the bank's name.
  9. The key to avoiding investment fraud, including scams that target specific groups, is using independent information to evaluate financial opportunities. Ask questions from the start and verify the answers with sources outside of your family, community, or group.
  10. Unbiased resources are available to help individuals make informed investing decisions. Whether checking the background of an investment professional, researching an investment, or learning about new products or scams, unbiased information can be a significant advantage for investing wisely. A good starting place is the SEC’s Investor.gov website.

The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

 

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