With the exception of bank insured products, there will always be a degree of risk involved in investing.
Risk and return go hand-in-hand. Higher risk usually means greater risk. Lower returns usually means greater safety.
If anyone guarantees your investment against loss, be skeptical and suspect fraud. Never invest is anything that you don't fully understand.
Avoid Focusing Purely on Goals
Focus on the whole range of the investment's characteristics in your decision-making. Do not simply focus on the return.
Before you purchase an investment, you should understand the following:
- the cost
- the degree and nature of the risks
- investment goals
- performance history, and
- any fees associated with the investment.
Get Everything in Writing
You should never rely on oral statements for assurance - get it in writing, and make sure you understand the information you receive. Check it against your own goals and risk tolerance. Get the opinion of an outside source if you are not sure.
If you are considering a mutual fund, for example, make sure you get answers to the following questions:
- What are the fund's goals and investment strategies?
- What are the fees and other costs involved, and how do they compare to comparable funds?
- How are the costs determined?
- What is the fund's performance and management history?
- How does it compare with similar funds?
- Are derivatives part of the fund? If so, are they used for hedging or speculating?
- Who is the fund manager? What is his or her background and investment history?
- Who can you call for more information?
Building a Successful Portfolio
Building a portfolio that is best for you should be based on your age, financial needs, and tolerance for risk. Just looking at funds that made the most money last year instead of how funds performed over the past 10 years could lead to trouble.
Use Common Sense
The internet has literally thousands of web sites dealing with investments. There are many very good ones and many very bad ones. Again, use your common sense and check out any information you see.
Deal with Licensed Professionals and Registered Products
Investment professionals need to be licensed with the Washington Department of Financial Institutions (DFI). In addition, most investment products sold need to be registered with DFI.
To check the licensing status and to find out if there are any complaints against an investment professional or investment product, contact the Washington State Department of Financial Institutions at 1.877.RING DFI (746-4334).
The Securities Investor Protection Corporation (SIPC)
Unlike the Federal Depository Insurance Corporation (FDIC), the SIPC is not a government agency. The SIPC only offers protection if a SIPC member fails financially and is unable to meet obligations to its securities customers. SIPC doesn't protect an investor against loss resulting is the ups and downs in the Market nor does it cover loses from bad advice, unsuitable recommendations, or fraud.