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 makes sense -- and it's happening right now.
World Investor Week encourages individual investors, investment professionals, teachers, parents, researchers, and other interested individuals, firms, regulators, and organizations to make a special effort to communicate key investor education messages this week, Oct. 2-8. It's promoted by the International Organization of Securities Commissions.
U.S. securities regulators like FINRA want you to keep these tips in mind this World Investor Week -- and every week -- when you invest.
1. Check your financial professional's background
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.
2. Do your research before you invest
Just because you checked your financial professional's background doesn't mean your research should stop there. You should also continue to thoroughly research any financial opportunities that come your way, and check the information you learn with unbiased sources. That can include the U.S. Securities and Exchange Commission's EDGAR database, which provides investors free access to the documents companies are required by law to file, such as corporate earnings statements or filings for an initial public offering (IPO). You can also visit FINRA's website to learn more about common investment products such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs), as well as to learn about key investment concepts.
3. Understand the impact of fees
It can be costly to ignore the fees associated with buying, owning, and selling an investment product. It is important that investors understand all fees and know how and where they are disclosed. Expenses vary from product to product, and even small differences in costs can mean large differences in earnings over time, because your fees impact overall investment performance. Simply put, an investment with high costs must perform better than a low-cost investment to generate the same returns. If you don't know where to start when it comes to researching fees, start with your brokerage statement or your 401(k). FINRA's Fund Analyzer can also help you compare expenses among fund investments (mutual funds, ETFs and exchange-traded notes) -- or among different share classes of the same fund.
4. Know that all investments have risk
Every investment carries some degree of risk, and the potential for greater returns often correlates with greater risk. If you plan to buy securities -- such as stocks, bonds, mutual funds, or ETFs -- it's important to understand that you could lose some or all of the money you invest. And if someone comes to you with an investment opportunity that they claim is a "sure thing," be sure to take extra caution -- promises of high returns with little or no risk are classic warning signs of fraud. Smart investors avoid so-called "can't miss" and "guaranteed risk-free" investment opportunities. Better yet, report them to the SEC, FINRA, your state regulator, or the CFTC. Don't worry about who you report it to, if you aren't sure. Any one of these regulators will make sure your information gets to the right person.
5. 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.
Diversification is a strategy that can be neatly summed up as "Don't put all your eggs in one basket." It 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. Some investors achieve diversification through ownership of mutual funds or exchange-traded funds. Learn more about diversification here.
7. Plan for and invest according to future needs and goals
Before you make any investing decision, take an honest look at your entire financial situation, especially if you've never made a financial plan before. An important first step to successful investing is figuring out your goals and risk tolerance, either on your own or with the help of a financial professional.
8. Recognize the benefit of investing on a regular basis
Many investors benefit from getting into the habit of paying themselves first. An easy way to do this is to set up regular, automatic deductions from a paycheck or bank account into a savings or investment account. These regular, automatic deductions will keep you on track toward your long-term financial goals.
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