World's Best Investor Tips for World Investor Week
FINRA Staff (FINRAInvestorEducation@finra.org)
Updated
Throughout the world, people of all walks of life make countless investment decisions every day. That's why a global campaign to raise awareness about the importance of investor education and protection make sense—and it's happening right now. Promoted by the International Organization of Securities Commissions, World Investor Week (October 1-7) encourages individual investors, investment professionals, teachers, parents, regulators researchers and other interested parties to make a special effort to communicate key investor education messages.
Much of the investment fraud we see today is committed by people who claim to be "investment professionals," but who are not properly licensed and registered. You can verify that an individual is actually licensed—for free—at BrokerCheck.org, Investor.gov and SmartCheck.gov. Plus, these simple search tools also allow you to find out if your investment professional has a disciplinary history or any past customer complaints. State securities regulators also provide detailed information about your investment professional. Doing a background check is a great first step toward protecting your money.
Related: Doing a background check on your investment professional is a great first step toward protecting your money.
Embrace the Power of Compound Interest
Albert Einstein reportedly described compound interest as "the most powerful force in the universe." Allowing your principal and accumulated interest to grow over time is an important part of building wealth. If you are investing or saving toward a goal, or just want to learn about how your money can grow under various hypothetical scenarios, take advantage of the SEC's compound interest and savings goal calculators. If your goal is to save for retirement, check out FINRA's Retirement Calculator to help stay on target for a secure retirement. But remember: the sooner you start investing and saving, the better.
Understand the Risks and Fraud Potential of Initial Coin Offerings
Investing in 2018 may be marked by the proliferation of initial coin offerings, or ICOs. Cryptocurrencies and ICOs have experienced rapid growth in recent years and have drawn the attention of individual and professional investors alike. ICOs have also caught the attention of fraudsters. Investors need to keep in mind that an attractive and alluring ICO website with seemingly friendly and reputable personnel biographies and well-prepared white papers can easily be fraudulent.
With the advent of any new technology come new investment opportunities. Many ICOs represent investments in new and early-stage businesses, and early-stage investing is marked by high risk. Know the risks of your investment, including that you could lose all of your investment. In addition, there could be a possibility that an ICO is fraudulent.
Don't Invest Just Based on Celebrity Endorsement
Similar to endorsements on products and services, some investment opportunities, including in the ICO space, may engage a celebrity to endorse and promote the investment. But a celebrity endorsement does not mean that an investment is legitimate or that it is appropriate for all investors. It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment.
Don't Invest Using Your Credit Card
Using your credit card to purchase products and services is available almost everywhere and for seemingly anything. However, despite this prevalence, using a credit card to make an investment is not typical and may be a red flag for fraud. You should understand that most licensed and registered investment firms do not allow their customers to use credit cards to buy investments or to fund an investment account.
Conduct Due Diligence with All Investments
Whether investing in a U.S. Treasury bond, a Fortune 500 company listed on a national stock exchange or an ICO opportunity, a smart investor will always conduct due diligence on the investment. Due diligence is another way of saying carefully researching the investment opportunity to make sure it is a smart decision. If you can, find third party sources of information about the investment. It's the same as when you check online reviews of something you're planning on buying or a place that you are deciding whether to stay. In other words, be careful where put your hard-earned money and don't rely on just what the promoter of the opportunity is telling you.
Know the Value of Diversification
Diversification helps protect the value of your portfolio if one or more of your investments perform poorly. Learn how to apply this key concept to your portfolio. When you diversify, you aim to manage your risk by spreading out your investments. You can diversify both within and among different asset classes. You can also diversify within asset classes. In this case, you divide the money you've allocated to a particular asset class, such as stocks, among various categories of investments that belong to that asset class.
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FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
