Tips To Avoid Investment Frauds

You will have invested in the so called penny stocks in the past. It is important for you to be aware of the flaws of these investments, so you can protect yourself as a financier. A lot of new stock exchange backers make the mistake of making an investment in thinking that they’ll be prepared to make a quick return. However, honestly, you will finish up losing giant amounts of money, as these types of instruments are simply manipulated and similarly all kinds of crimes can occur. 

Though, not each penny stock can be thought as fake, the probabilities of you having an issue because of a myth are terribly high with little caps. The most vital technique of crime is by disinformation. It is really tough to get information about these stocks, as these stocks are not bound by the information laws and rules that apply to growth stocks that are found in the NASDAQ

Thus , you have not any technique of knowing if these investments will be in a position to earn earnings, since you won’t have any reliable history to analyze on. In addition, you won’t be informed about any top management changes or any top level calls as these firms do not need to tell the public. So, you won’t have the necessary information that may help you to make the right call about these instruments. You can not find data about their total fiscal assets, and their cash return proportions and quotients.

They are subject to manipulation and in several cases ; the middle management of these firms will use fake and manipulative media coverage from local Television stations, radios and other media outlets. You can watch these interviews and you might imagine that these little caps will be in a position to show great performance. Thus , you may finish up buying countless penny stocks only to see that you have lost a giant amount of money. E-mail spamming is the commonest crime strategy that these firms use. Millions of spam email messages are sent to lots of speculators in the hope that many of them will fraudulently believe that these stocks will gain in cost.

In lots of cases, these types of spam email strategies are employed, so that the price control of these micro caps occurs. When a ton of stock holders inquire about a certain tiny cap, then by accident the expenses will go up thanks to the illusion of demand. In many cases, the expenses of these investments are manipulated and when you are making a try to sell your stock, you can quickly see the volume of trade is extraordinarily thin. This will make you have frozen assets, since you may not be in a position to sell your stock due to low demand. So , you will be forced to sell your penny stocks with a low price and the manipulators will get your shares at even a lower price from you. Regularly these kind of activities are employed by black market dealers to clean dirty and illegal money.

Penny Stocks Are Risky Business! Stay Away

This is for enabling the fresh comers to understand the hazards concerned in penny stocks. Tiny caps deal with those instruments sold at lower rates often between $5 to $1. Lots of these micro cap are offered by the new firms and the possibilities of non-availability of financial info about the stocks are high as the firms offering them might have only a limited liquidity. The penny stock handlers are commonly the day traders who do not get committed with long term investments. Day traders are the term used to refer the investor who buy the penny stock, and frequently sell these on the same day when it reaches a distinct cost. 

But there are cases of speculators possessing the safety for a few years. These types of investments can be acquired thru the brokers or on the internet. Few consider tiny caps as the ones with minimal investments which can give high profits if handled smartly. The undeniable fact that solid finance isn’t a characteristic of the micro caps leads to a ton of hazards and issues. This could be clearly accepted as nearly all the stocks are out of the ordinary unpredictable and are subject to acute fluctuations even in a single trading day. The instability of these investments make them widely difficult as they are often of smaller worth and inactive in comparison to the other sorts of investment vehicles.

The other problem with the micro caps is that many of the stock holders face the hazards of losing their complete investments as finding the quotes on them can be hard at the times of selling. Before purchasing the this securities, the financier must understand the high risks troubled like the liquidity will be less as the quantity of stock holders is less. Due to this and the non-availability of the financial reports, the perils of crimes are much possible. There are cases where the holder found no buyers for their tiny cap on certain days. The price also ordinarily has steep rise or sudden decline, and so is a total bet. Another main factor about the them is the smaller companies which don’t get listed under the outstanding exchanges like AMEX, NYSE, or NDX , select the smaller listings like Pink Sheets or OTCBB.

The issue with going for Pink sheets or such stock market listing is that these have comparatively less regulatory desires for the companies to get listed with them. This indirectly implies the holder of penny stocks are less protected from possession notifications of shares, accounting conventions, as an example. So making an investment in this sort of stocks can be an effective means to lose money and care must be taken by the bankers to keep their eyes wide open when measuring the loyalty of the stocks offered by the firms listed under OTCBB or Pink Sheets as they are exposed to huge trick.

Penny Stock Investing Misconceptions

You have doubtless heard of the term penny stocks. In broker’s terms, any stock that has lees than an one greenback worth per share is regarded as a penny stock. In SEC ( SEC Commission ) terms, any stock which has a value of less than five dollars per share and also which isn’t exchanged on the major exchanges ( like NYSE or NDX ) is referred to as a penny stock. These kinds of stocks are traded over the counter and they are listed in exchange boards like the Pink Sheets or in the OTCBB.

While, many of us would think that making an investment in a penny stock would be advantageous, in reality it is really disadvantageous to take a position in penny stocks. Many of us think that they can make a better investment with smaller amounts of money and they also hope that they’re going to be ready to increment their savings pretty fast. The explanation for this belief stems from the costs. The cost of a penny stock is mostly less than a $.

Moreover, these stock share values are customarily in the range of 10 cents to fifty cents a share. ( Infrequently they are even lower than ten cents a share ) this indicates that as an example if you have got a twenty cent share and if that share gains five cents in its price, this will mean that you made a 25% gain in your stock worth.Therefore , if you have invested ten thousand US dollars, then this can mean that you’ll make 2500 bucks in a day or two. Or on the other hand, if you have invested around $100,000 this may mean that you can make around $25,000. Thus , it is the attraction of this straightforward money that makes folk to go and invest in penny stocks. Naturally, you can just as simply finish up losing 25% to half of your savings in a massive downturn of your penny stock shares.

Another myth about penny stocks is the proven fact that a lot of folk think that many major corporations have climbed up the ladder thru penny stocks. Thus , folk hope to gain money by making an investment in that company’s future. They compare this chance to making an investment in Microsoft’s younger self. These financiers hope to find a company that is promising to boom up and make lots of money. Therefore , several speculators have the inaccurate idea that an investment in a penny stock will permit them great returns for their savings. In truth, penny stocks are a sure and a fast way to lose money. Thanks to the fact that these corporations are now not SEC controlled, they can be fake in their reports to the general public. In majority of cases, they do not even report to the general public as they don’t seem to be under duty to do so. Also, in majority of the cases, these firms are in the negative side of the monetary range and you can finish up losing giant amounts of money.

If it is a penny stock it must be a bad stock

Penny stocks are also known as little cap stocks. These are stocks which are sold at a price which is less than a dollar per share. These penny stocks are routinely not listed in the major stock exchanges. Occasionally you can trade penny stocks on the pink sheet. In spite of its dodgy nature, penny stocks are far more prevalent among the backers.Big investment isn’t needed to start trading with penny stocks. But almost all of the times, believe it or not, little investment in penny stock will bring in devastating losses. Almost all of the time new stock exchange speculators bear in mind that “good penny stock” will certainly bring in lots of money. This may be a myth among folks attempting to hit the lottery ticket in one investing solution. To earn money in the stock market you should invest in the right sort of stocks and also know how it all works.

The majority of the backers aren’t aware as to which are the good growth stocks that may be invested. There are certain tools and correct system to be followed to profit from the stock market. If you don’t have access to these tools you don’t need to worry. Step one for you when you go in for making an investment in stocks is to implement a determined penny stocks preference system, which shows the best stock picks and also show the ones to be evaded. You may also seek the support of a professional stock broker, info available in expansion stock newssheets and naturally your own discretion. Except for this you’ll have to perform a particularly careful and good research work about the expansion stock firms in which you need to invest.

You will have to give in hours of stock research, payments to good, plausible financial reports sites and a calculator to reveal a “beneficial penny stock”. And believe me if you do find them then remember that your time and cash isn’t worthwhile. In addition, you as a stockholder be conscious of all potential risks involved in the investment of penny stocks. The money steadiness of the company, top quality trading quantity, and well-built business plans are also some of the factors which you can consider for expansion stock picks.

The market varies common-or-garden which might be for the bad. It is left to the investors to recognize as to the way to reply to it and compose it to work for us. Essentially, now isn’t the time to invest your savings in penny stocks. You can invest in stocks now for a cost, which is less than half the cost of their real price, and find great growth stocks. The sole cause for such a slump in the stock market is often because the confidence of backers is also decreasing in the stock market.

Never Buy Penny Stocks Again! Go for Big Growth!

If you are a novice, you might be led to believe that penny stocks are an easy get-rich strategy for the newcomer as well as for some of the experienced investors. The choice an investor has is between the blue chip companies and the small ones.

The blue chip companies run established, successful and steady businesses. But the smaller companies are found to appeal more to the investors due to their probability of striking a massive, incredible fortune. There are negative reasons that influence the investors to purchase penny stocks.

People usually fall prey to the belief that if the stock is cheap it will give quicker returns. This is simply not true. In fact the smart investor should not think twice, he should just go ahead and invest in the ‘high priced’ growth stocks of the larger or the blue chip companies. They possess scope for appreciation, though the returns are slow and steady, your capital will not get wiped off.

Another reason for investing in growth stocks is that should something go really wrong, the government steps in to bail out these companies, whereas if penny stocks sink, who will help?

The absolute value of the share price does not have any impact on the investors’ returns in the ultimate count. Earlier, when the stocks were in physical form and not dematerialized, there existed minimum lot sizes for the buying of stocks and this held them outside the reach of the small investors. So, a good understanding of the financial market is essential prior to making an investment decision. An investor can buy a very small quantity of a growth stock and add to it on every decline. This is smart thinking to bring down average cost.

In penny stocks, there is manipulation, and pumping and the dumping policies are rampant. The promoters of these small cap companies usually patch up with the brokers and pump up the stock prices by indulging in massive publicity stunts and issuing announcements. This attracts the attention of the investors. As a result of the hype when the desired number of the penny stocks is sold, they finally dump it on the retail investors. Therefore, it is not wise to simply rely on the broker’s advice. 

The attractive brochures of penny stocks show huge profits but in reality these small companies have registered years of losses. These are often cooked up details to lure the investors, who must learn to differentiate between the genuine and the fake. But the investor does not stand the option to validate any of this information since they seldom have the resources to do it. They again rely on them and the brokerage firms.

And most important, when penny stocks get stuck in the lower ring of the stock market circuit, it is difficult to liquidate them, for the exit door is tightly shut before the small investor realizes it. 

Penny Stocks:A fool and his money are soon parted, pray, don’t be a fool

I wouldn’t put my hard earned money in penny stocks – never! The last thing a person ought to do is take a chance with penny stocks – do it only if you are suicidal, or have money to burn, or frankly, if the money is not your own.

I never listen to my broker when he recommends such stocks, even when he tries to put up a convincing argument about their top-line growth. The valuations are unreal and an inexperienced investor can really get taken in when for instance, he hears that a particular company has about 8 million market cap and more than 10 million in revenue (which is small according to me)

I am not a professional financial advisor, or professional of any sort, so what I am saying is just my own opinion. At the same time though, my thoughts are pretty much in line with the general consensus about penny stocks that they are extremely risky to invest in.. I have rather strong opinions about such stocks and get rather vociferous in an argument.

Whenever a discussion about penny stocks comes up, I only have one consistent thought – that given all the risk elements surrounding them, I think it is better to go to Las Vegas and gamble there instead. 

I just won’t touch them with a ten-foot pole. First of all, the information on penny stocks is difficult to obtain.  Price and volume data may not be easily or directly available to the public and may only be made accessible to you by your broker or brokerage firm.

Because they are so thinly traded, penny stocks are easily manipulated. I can write about several past experiences when a penny stock trading experiment failed and I lost almost all my money. Brokers often push penny stocks upon clients because they can charge more for such stocks. A client can never be too careful while dealing with a broker who imposes such charges.

Penny stocks are marketed very aggressively, and people give in to temptation. Not many people are active investors, and can never judge when to offload such stocks, people often hold on too long and miss a selling opportunity, or are indecisive in a falling stock market, and sell for huge loss.

At such times, the broker will never give correct advice from the investor’s point of view. HE will never be happy with your decision to sell, so many people, not wanting to antagonize the broker, hold such stocks and finally one day they are left holding trash.

You always have to be careful when discussing your sell decisions with your broker. Mostly, the broker will be less than supportive of your wishes to sell your stock, and will convince you to keep hanging on or trading these so-called “investments” for a long term horizon. 

Worthless Stock: How to Avoid Doubling Your Losses

Con artists across the globe have stepped up their efforts to rip off investors, especially non-U.S. residents who have lost money in the U.S. securities stock markets. While it’s natural to want to recoup one’s losses as quickly and as fully as possible, the SEC warns investors to be extremely skeptical of offers to exchange worthless or poorly performing stocks for blue chips or “hot” performers.

Worthless stock is typically just that — worthless. And anyone who promises a quick way to recover from a bad investment is probably just lying to you. We encourage you to thoroughly investigate any investment opportunity, as well as the person promoting it, before you part with your money. This is especially critical if you are a non-U.S. investor seeking to invest in U.S. stocks — or if you learn about the opportunity over the telephone from a stock broker you don’t know. The “broker” may well be a con artist, and the deal may be a dud. Remember, if an offer sounds too good to be true, it probably isn’t true.

This alert tells you how to spot potential “stock swap” scams, how to evaluate the offers you hear about, and where to turn for help.

What to Watch Out For

Although fraudsters use a wide variety of techniques to carry out their “worthless stock swap” scams, most of these frauds boil down to a predictable formula: a persuasive pitch, which nearly always contains false assurances of legitimacy, followed by demands for money. Here are some “red flags” to avoid:

 Aggressive Cold Calls from “Boiler-Rooms” — Con artists posing as U.S. or United Kingdom brokers will first identify investors who have lost money investing in “microcap” stocks, the low-priced and thinly traded penny stocks issued by the smallest of U.S. companies. Operating from remote boiler-rooms, they then mount an aggressive cold calling or emailing campaign, focusing their pitch on loss recovery. They might offer to swap a poorly performing penny stock for an established, blue chip stock — or they will claim that their firm or an anonymous “client” wants to purchase the shares directly.

 Impressive Websites Serving as Fronts for Virtual Offices — To make their schemes appear convincing, fraudsters will invite you to visit “their” website — which will have pages of detailed information and perhaps a photo or biography of the broker. But all too often the site will be nothing more than a fraudulent copy of a legitimate firm’s website — with changes made only to the name and contact information. The con artists will adopt fake yet familiar-sounding names and operate out of virtual offices, using phony addresses, remote mail drops, and redirected phone and facsimile numbers to carry out their scams.

 Self-Provided References — Knowing that regulators encourage investors to investigate before they invest, fraudsters often pretend to do the same. They will falsely assure you that the investment is properly registered with the appropriate agency and purport to give you the agency’s telephone number so that you can verify that “fact.” Sometimes they will give you the name of a real agency — other times they will fabricate one. But even if the agency does exist, the contact information invariably will be false. Instead of speaking with a government official, you’ll reach the fraudsters or their colleagues — who will give the company, the promoter, or the transaction high marks.

 Claims of Government “Approval” — Another ruse fraudsters use to appear credible involves the misuse of federal agency seals, including the seals of the SEC and the Federal Trade Commission. They will copy the official seal from the regulator’s website and use it to create fake letterhead for a fictitious letter of approval. But you should know that the SEC and FTC — like other state and federal regulators in the U.S. and around the world — do not “approve” or “endorse” any particular stock transactions or “loss recovery” programs.

 Advance Payment Requests — Regardless of how the fraudsters pitch their offers to “help”, there’s always a catch. Before they will complete the deal, they first will ask for an upfront “security deposit” or “margin payment” — or claim that you must post an “insurance” or “performance bond.” The minute you pay the advance fee, the fraudsters nearly always disappear — leaving you with new losses. If you seem willing to make further payments, the con artists may instead keep asking for more — falsely claiming that the market price of the security has changed or that the payments will cover additional fees, taxes, bonds for the courier service, or other similar expenses. Only when you finally run out of patience or money to chase your losses do the fraudsters disappear for good.

 

Best Growth Stock Market Report provides you with the best stock picks and stock market advices

How To Avoid Problems

Choosing someone to help you with your investments is one of the most important investment decisions you will ever make. While most investment advice professionals are honest and hardworking, you must watch out for those few unscrupulous individuals. They can make your life’s savings disappear in an instant.

Securities regulators and law enforcement officials can and do catch these criminals. But putting them in jail doesn’t always get your money back. Too often, the money is gone. The good news is you can avoid potential problems by protecting yourself.

Let’s say you’ve already met with several investment professionals based on recommendations from friends and others you trust, and you’ve found someone who clearly understands your investment objectives. Before you hire this person, you still have more homework.

Make sure the investment professional and her firm are licensed to do business and incorporated. And find out the company have ever been disciplined, or whether they have any complaints against them. You should also find out as much as you can about any investments that your investment professional recommends. First, make sure the investments and companies are registered. Keep in mind, however, the mere fact that a company has registered and files reports with the SEC doesn’t guarantee that the company will be a good investment.

Likewise, the fact that a company hasn’t registered and doesn’t file reports with the SEC doesn’t mean the company is a fraud. Still, you may be asking for serious losses if, for instance, you invest in a small, thinly traded company that isn’t widely known solely on the basis of what you may have read online. One simple phone call to your state regulator could prevent you from squandering your money on a scam. You can read more on this topic in our brochure, ”Information Matters.”

Be wary of promises of quick profits, offers to share “inside information,” and pressure to invest before you have an opportunity to investigate. These are all warning signs of fraud.

Ask your investment professional for written materials, and read them before you invest. If you have questions, now is the time to ask. 

What If I Have a Problem?

Some investments make money. Others lose money. That’s natural, and that’s why you need a diversified portfolio to minimize your risk. But if you lose money because you’ve been cheated, that’s not natural, that’s a problem.

Sometimes all it takes is a simple phone call can resolve a problem. Maybe there was an honest mistake that can be corrected.

You’re almost there! A few final thoughts before you continue your journey … 

How To Pick A Financial Professional

Are you the type of person who will read as much as possible about potential investments and ask questions about them? If so, maybe you don’t need investment advice.

But if you’re busy with your job, your children, or other responsibilities, or feel you don’t know enough about investing on your own, then you may need professional investment advice.

Investment professionals offer a variety of services at a variety of prices. It pays to comparison shop.

You can get investment advice from most financial institutions that sell investments, including brokerages, banks, mutual funds, and insurance companies. You can also hire a broker, an investment adviser, an accountant, a financial planner, or other professional to help you make investment decisions.

 

Investment Advisers and Financial Planners 

Some financial planners and investment advisers offer a complete financial plan, assessing every aspect of your financial life and developing a detailed strategy for meeting your financial goals. They may charge you a fee for the plan, a percentage of your assets that they manage, or receive commissions from the companies whose products you buy, or a combination of these. You should know exactly what services you are getting and how much they will cost.

People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. Remember, there is no such thing as a free lunch. Professional financial advisers do not perform their services as an act of charity. If they are working for you, they are getting paid for their efforts. Some of their fees are easier to see immediately than are others. But, in all cases, you should always feel free to ask questions about how and how much your adviser is being paid. And if the fee is quoted to you as a percentage, make sure that you understand what that translates to in dollars.

 

Brokers 

Brokers make recommendations about specific investments like stocks, bonds, or mutual funds. While taking into account your overall financial goals, brokers generally do not give you a detailed financial plan. Brokers are generally paid commissions when you buy or sell securities through them. If they sell you mutual funds make sure to ask questions about what fees are included in the mutual fund purchase. Brokerages vary widely in the quantity and quality of the services they provide for customers. Some have large research staffs, large national operations, and are prepared to service almost any kind of financial transaction you may need. Others are small and may specialize in promoting investments in unproven and very risky companies. And there’s everything else in between.

A discount brokerage charges lower fees and commissions for its services than what you’d pay at a full-service brokerage. But generally you have to research and choose investments by yourself.

A full-service brokerage costs more, but the higher fees and commissions pay for a broker’s investment advice based on that firm’s research. The best way to choose an investment professional is to start by asking your friends and colleagues who they recommend. Try to get several recommendations, and then meet with potential advisers face-to-face. Make sure you get along. Make sure you understand each other. After all, it’s your money.

You’ll want to find out if a broker is properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You’ll also want to know about the brokers’ educational backgrounds and where they’ve worked before their current jobs. To get this information, you can ask either your state securities regulator or the NASD to provide you with information from the CRD, which is a computerized database that contains information about most brokers, their representatives, and the firms they work for. Your state securities regulator may provide more information from the CRD than NASD, especially when it comes to investor complaints, so you may want to check with them first. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.’swebsite. You can go to NASD’s website to get CRD information or call them toll-free at (800) 289-9999. 

 

Opening a Brokerage Account 

When you open a brokerage account, whether in person or online, you will typically be asked to sign a new account agreement. You should carefully review all the information in this agreement because it determines your legal rights regarding your account.

Do not sign the new account agreement unless you thoroughly understand it and agree with the terms and conditions it imposes on you. Do not rely on statements about your account that are not in this agreement. Ask for a copy of any account documentation prepared for you by your broker.

The broker should ask you about your investment goals and personal financial situation, including your income, net worth, investment experience, and how much risk you are willing to take on. Be honest. The broker relies on this information to determine which investments will best meet your investment goals and tolerance for risk. If a broker tries to sell you an investment before asking you these questions, that’s a very bad sign. It signals that the broker has a greater interest in earning a commission than recommending an investment to you that meets your needs. The new account agreement requires that you make three critical decisions:

1. Who will make the final decisions about what you buy and sell in your account?

You will have the final say on investment decisions unless you give “discretionary authority” to your broker. Discretionary authority allows your broker to invest your money without consulting you about the price, the type of security, the amount, and when to buy or sell. Do not give discretionary authority to your broker without seriously considering the risks involved in turning control over your money to another person. 

2. How will you pay for your investments?

Most investors maintain a “cash” account that requires payment in full for each security purchase. But if you open a “margin” account, you can buy securities by borrowing money from your broker for a portion of the purchase price.

Be aware of the risks involved with buying stocks on margin. Beginning investors generally should not get started with a margin account. Make sure you understand how a margin account works, and what happens in the worst case scenario before you agree to buy on margin.

Unlike other loans, like for a car or a home, that allow you to pay back a fixed amount every month, when you buy stocks on margin you can be faced with paying back the entire margin loan all at once if the price of the stock drops suddenly and dramatically. The firm has the authority to immediately sell any security in your account, without notice to you, to cover any shortfall resulting from a decline in the value of your securities. You may owe a substantial amount of money even after your securities are sold. The margin account agreement generally provides that the securities in your margin account may be lent out by the brokerage firm at any time without notice or compensation to you.

3. How much risk should you assume?

In a new account agreement, you must specify your overall investment objective in terms of risk. Categories of risk may have labels such as “income stock,” “growth stock,” or “aggressive growth stock.” Be certain that you fully understand the distinctions among these terms, and be certain that the risk level you choose accurately reflects your age, experience and investment goals. Be sure that the investment products recommended to you reflect the category of risk you have selected.

When opening a new account, the brokerage firm may ask you to sign a legally binding contract to use the arbitration process to settle any future dispute between you and the firm or your sales representative. Signing this agreement means that you give up the right to sue your sales representative and firm in court.

 

Ask Questions! 

You can never ask a dumb question about your investments and the people who help you choose them, especially when it comes to how much you will be paying for any investment, both in upfront costs and ongoing management fees.

We encourage you to read our publication “Ask Questions” before talking to any investment professional. To get you started, here are some of the most important questions you should ask when choosing an investment professional or someone to help you:

• What training and experience do you have? How long have you been in business?
• What is your investment philosophy? Do you take a lot of risks or are you more concerned about the safety of my money?
• Describe your typical client. Can you provide me with references, the names of people who have invested with you for a long time?
• How do you get paid? By commission? Based on a percentage of assets you manage? Another method? Do you get paid more for selling your own firm’s products?
• How much will it cost me in total to do business with you?

Your investment professional should understand your investment goals, whether you’re saving to buy a home, paying for your children’s education, or enjoying a comfortable retirement.

Your investment professional should also understand your tolerance for risk. That is, how much money can you afford to lose if the value of one of your investments declines?

An investment professional has a duty to make sure that he or she only recommends investments that are suitable for you. That is, that the investment makes sense for you based on your other securities holdings, your financial situation, your means, and any other information that your investment professional thinks is important.

The best investment professional is one who fully understands your objectives and matches investment recommendations to your goals. You’ll want someone you can understand, because your investment professional should teach you about investing and the investment products.

How Should I Monitor My Investments?

Investing makes it possible for your money to work for you. In a sense, your money has become your employee, and that makes you the boss. You’ll want to keep a close watch on how your employee, your money, is doing.

Some people like to look at the stock quotations every day to see how their investments have done. That’s probably too often. You may get too caught up in the ups and downs of the “trading” value of your investment, and sell when its value goes down temporarily—even though the performance of the company is still stellar. Remember, you’re in for the long haul.

Some people prefer to see how they’re doing once a year. That’s probably not often enough. What’s best for you will most likely be somewhere in between, based on your goals and your investments.

But it’s not enough to simply check an investment’s performance. You should compare that performance against an index of similar investments over the same period of time to see if you are getting the proper returns for the amount of risk that you are assuming. You should also compare the fees and commissions that you’re paying to what other investment professionals charge.

While you should monitor performance regularly, you should pay close attention every time you send your money somewhere else to work.

Every time you buy or sell an investment you will receive a confirmation slip from your broker. Make sure each trade was completed according to your instructions. Make sure the buying or selling price was what your broker quoted. And make sure the commissions or fees are what your broker said they would be.

Watch out for unauthorized trades in your account. If you get a confirmation slip for a transaction that you didn’t approve beforehand, call your broker. It may have been a mistake. If your broker refuses to correct it, put your complaint in writing and send it to the firm’s compliance officer. Serious complaints should always be made in writing.

Remember, too, that if you rely on your investment professional for advice, he or she has an obligation to recommend investments that match your investment goals and tolerance for risk. Your investment professional should not be recommending trades simply to generate commissions. That’s called ”churning,” and it’s illegal.

At this point, you are within two stops of completing your saving and investing journey! Now it’s time to move on to the next stop: ”How to Avoid Problems.”

Investment Products:Your Choices

When you make an investment, you are giving your money to a company or an enterprise, hoping that it will be successful and pay you back with even more money.

Some investments make money, and some don’t. You can potentially make money in an investment if:

• The company performs better than its competitors.
• Other investors recognize it’s a good company, so that when it comes time to sell your investment, others want to buy it.
• The company makes profits, meaning they make enough money to pay you interest for your bond, or maybe dividends on your stock.

You can lose money if:

• The company’s competitors are better than it is.
• Consumers don’t want to buy the company’s products or services.
• The company’s officers fail at managing the business well, they spend too much money, and their expenses are larger than their profits.
• Other investors that you would need to sell to think the company’s growth stock is too expensive given its performance and future outlook.
• The people running the company are dishonest. They use your money to buy homes, clothes, and vacations, instead of using your money on the business.
• They lie about any aspect of the business: claim past or future profits that do not exist, claim it has contracts to sell its products when it doesn’t, or make up fake numbers on their finances to dupe investors.
• The brokers who sell the company’s stock manipulate the price so that it doesn’t reflect the true value of the company. After they pump up the price, these brokers dump the stock, the price falls, and investors lose their money.
• For whatever reason, you have to sell your investment when the market is down.

Here are some kinds of investments you may consider making:

 

Stocks and Bonds 

Many companies offer investors the opportunity to buy either stocks or bonds. The following example shows you how stocks and bonds differ.

Let’s say you believe that a company that makes automobiles may be a good investment. Everyone you know is buying one of its cars, and your friends report that the company’s cars rarely break down and run well for years. You either have an investment professional investigate the company and read as much as possible about it, or you do it yourself.

After your research, you’re convinced it’s a solid company that will sell many more cars in the years ahead. The automobile company offers both stocks and bonds. With the bonds, the company agrees to pay you back your initial investment in ten years, plus pay you interest twice a year at the rate of 8% a year.

If you buy the stock, you take on the risk of potentially losing a portion or all of your initial investment if the company does poorly or the stock market drops in value. But you also may see the stock increase in value beyond what you could earn from the bonds. If you buy the stock, you become an “owner” of the company.

You wrestle with the decision. If you buy the bonds, you will get your money back plus the 8% interest a year. And you think the company will be able to honor its promise to you on the bonds because it has been in business for many years and doesn’t look like it could go bankrupt. The company has a long history of making cars and you know that its stock has gone up in price by an average of 9% a year, plus it has typically paid stockholders a dividend of 3% from its profits each year.

You take your time and make a careful decision. Only time will tell if you made the right choice. You’ll keep a close eye on the company and keep the stock as long as the company keeps selling a quality car that consumers want to drive, and it can make an acceptable profit from its sales.

 

Mutual Funds 

Because it is sometimes hard for investors to become experts on various businesses—for example, what are the best steel, automobile, or telephone companies—investors often depend on professionals who are trained to investigate companies and recommend companies that are likely to succeed.

Since it takes work to pick the stocks or bonds of the companies that have the best chance to do well in the future, many investors choose to invest in mutual funds.

What is a mutual fund?

A mutual fund is a pool of money run by a professional or group of professionals called the “investment adviser.” In a managed mutual fund, after investigating the prospects of many companies, the fund’s investment adviser will pick the stocks or bonds of companies and put them into a fund. Investors can buy shares of the fund, and their shares rise or fall in value as the values of the stocks and bonds in the fund rise and fall.

Investors may typically pay a fee when they buy or sell their shares in the fund, and those fees in part pay the salaries and expenses of the professionals who manage the fund.

Even small fees can and do add up and eat into a significant chunk of the returns a mutual fund is likely to produce, so you need to look carefully at how much a fund costs and think about how much it will cost you over the amount of time you plan to own its shares. If two funds are similar in every way except that one charges a higher fee than the other, you’ll make more money by choosing the fund with the lower annual costs. To easily compare mutual fund costs, you can use our mutual fund cost calculator.

Mutual Funds Without Active Management

One way that investors can obtain for themselves nearly the full returns of the market is to invest in an “index fund.” This is a mutual fund that does not attempt to pick and choose stocks of individual companies based upon the research of the mutual fund managers or to try to time the market’s movements. An index fund seeks to equal the returns of a major stock index, such as the Standard & Poor 500, the Wilshire 5000, or the Russell 3000. Through computer programmed buying and selling, an index fund tracks the holdings of a chosen index, and so shows the same returns as an index minus, of course, the annual fees involved in running the fund. The fees for index mutual funds generally are much lower than the fees for managed mutual funds.

Historical data shows that index funds have, primarily because of their lower fees, enjoyed higher returns than the average managed mutual fund. But, like any investment, index funds involve risk.

Watch “Turnover” to Avoid Paying Excess Taxes

To maximize your mutual fund returns, or any investment returns, know the effect that taxes can have on what actually ends up in your pocket. Mutual funds that trade quickly in and out of stocks will have what is known as “high turnover.” While selling a stock that has moved up in price does lock in a profit for the fund, this is a profit for which taxes have to be paid. Turnover in a fund creates taxable capital gains, which are paid by the mutual fund shareholders.

The SEC requires all mutual funds to show both their before- and after-tax returns. The differences between what a fund is reportedly earning, and what a fund is earning after taxes are paid on the dividends and capital gains, can be quite striking. If you plan to hold mutual funds in a taxable account, be sure to check out these historical returns in the mutual fund prospectus to see what kind of taxes you might be likely to incur.