Source: Securities and Exchange Commission
Oct. 5, 2020
The SEC’s Office of Investor Education and Advocacy, the Commodity Futures Trading Commission (CFTC), the Financial Industry Regulatory Authority (FINRA), the National Futures Association (NFA), and the North American Securities Administrators Association (NASAA) are issuing this Investor Bulletin to highlight key messages from World Investor Week 2020, a global campaign to raise awareness about the importance of investor education and protection. From October 5-11, 2020, investors, investment professionals, teachers, parents, researchers, and others are encouraged to make a special effort to promote investor education. Here are a few key messages for Main Street investors.
INVEST FOR THE LONG-TERM AND PLAN FOR LIFE’S UNEXPECTED CHALLENGES
Investing for the long term is one of the best ways to secure a strong financial future. Every investor is different, so when you’re creating your investment plan, it’s important to identify your unique financial goals, such as saving for a house, your children’s education, or retirement. Then, you need to think about how much you need to invest to achieve those goals. Your plan should also include having access to money for life’s unexpected challenges, such as a medical emergency or loss of employment. Many financial professionals recommend having enough emergency savings to cover up to six months of living expenses to help carry you through difficult economic times.
Various events can cause market fluctuations−pandemics, shifts in government policies, crises in foreign countries, changes in economic data, and more. You can’t control how these forces may impact the market, but you can take steps to mitigate their impact on your investment portfolio. One of the best ways to manage the impact of market volatility on your portfolio—whether you are an experienced investor or just starting out—is to create and stick with a risk-appropriate, diversified investment plan. When developing an investment plan and considering risk, think about your investment objectives and experience, current financial situation, hidden costs and ongoing administrative fees, and your ability to withstand losses. Also consider your time horizon. If you know you will need to withdraw money from your investments in the near term (for example, to buy a house or a car), you may want to consider moving a portion of your portfolio to more conservative, liquid investments. You may not have a lot of time to wait for a market rebound if the market is down or declining at the time you need access to your money. The same principles apply for your rainy-day fund.
If you have already created a personal investment plan, you may want to consider reviewing it to see whether any adjustments need to be made to meet your financial goals, particularly if your life has changed. Life changes come in many forms—from marriage or divorce, to the birth of a child or death of a loved one. Life can also change when unexpected challenges occur or during periods of market volatility. However, it is important not to make any rash decisions. Think carefully before making any adjustments.
BEWARE OF SCAMS RELATING TO COVID-19
Fraudsters often use the latest news developments to lure investors into scams. These scams may rely on Internet promotions—including on social media—claiming that the products or services of specific publicly-traded companies can prevent, detect, or cure coronavirus, and that the stock of these companies will dramatically increase in value as a result. The promotions may take the form of so-called “research reports” and make predictions of a specific “target price.”
Unscrupulous promotors may also target benefits offered to businesses and individuals affected by the COVID-19 pandemic. For example, promotors have misused benefits provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to encourage investors to take money from their 401(k)s or traditional IRAs, not for current emergency financial needs, but to buy investments (often riskier ones) in an account at a firm the promoter recommends or in the investor’s existing account.
We urge investors to be wary of these promotions, and to be aware of the substantial potential for fraud at this time.
- Be cautious of claims that a company’s products or services can help stop the coronavirus, especially claims that involve microcap stocks. These claims may be made as part of fraudulent “pump-and-dump” schemes.
- Avoid offers introduced on social media, individuals who communicate only through encrypted messaging apps, require Bitcoin or other digital assets to fund accounts, and trading websites operated by companies outside the United States.
- You may lose significant amounts of money if you invest in a company that makes inaccurate or unreliable claims. You may not be able to sell your shares if trading in the company is suspended.
- By tapping into your retirement savings to make other investments, you may significantly increase your investment risk and decrease the funds available to you in retirement.
- Avoid offers that guarantee unreasonably large returns in a short amount of time. Never pay more money to withdraw your principal or earnings.
- Submissions of tips, complaints, or referrals relating to suspected securities fraud or wrongdoing can be made online at https://www.sec.gov/tcr.
When investing in any company, including companies that claim to focus on coronavirus-related products and services, carefully research the investment and keep in mind that investment scam artists often exploit the latest crisis to line their own pockets.
CHECK OUT YOUR INVESTMENT PROFESSIONAL
If you decide to work with an investment professional, always confirm that they are licensed and registered. Investor.gov can help you research and select an individual or firm, as can FINRA’s BrokerCheck. You can also contact your state or provincial securities regulator to make sure an investment product and the person selling it are properly licensed or registered and to learn more about your investment professional’s background. You can check the registration status and disciplinary backgrounds of futures, options, and foreign exchange firms, professionals, and trading platforms using the National Futures Association BASIC database. Unlicensed, unregistered persons commit much of the investment fraud in the United States and Canada, so this is an important first step if you are considering working with an investment professional.
Different types of investment professionals offer a range of products and investment services—from providing low-cost platforms for do-it-yourself investors to comprehensive portfolio management and everything in between. When choosing an investment professional, consider which products and services the professional offers, how they can help you best achieve your goals, and how much you will pay for their services.
Registered brokers and investment advisers are required to provide a customer or client relationship summary (also called Form CRS) to retail investors. Visit Investor.gov/CRS to learn more about the relationship summary and the differences between brokers and investment advisers, including how they are paid for their services.
Determining which investment products best meet your financial objectives and identifying a financial professional who sells those products (if you choose to work with one) is very important. Different financial professionals sell different types of products, and some financial professionals only offer a limited number of choices.
Questions to Ask About Products
- Is this investment product registered with the SEC, CFTC, or my state securities agency?
- Does this investment match my investment goals and risk tolerance? Why is this investment appropriate for me?
- What are the total fees to purchase, maintain, and sell this investment? Are there ways that I can reduce or avoid some of the fees that I will pay, such as by purchasing the investment directly?
- How liquid is this investment? How easy would it be to sell if I needed my money right away?
- What are the specific risks associated with this investment?
- Is the trade leveraged? Could I lose more than I initially wanted to invest if the market moves against my position? Do I have enough trading capital to cover a margin call?
- Where can I get more information about this investment? Can I get the latest reports filed by the company with the SEC: a prospectus or offering circular, or the latest annual report and financial statements?
Questions to Ask About Financial Professionals
- Given my financial situation, should I choose an investment advisory service? Should I choose a brokerage service? Should I choose both types of services? Why or why not?
- What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean and how can I check your status?
- What products and services do you offer?
- For investors who want to receive recommendations, how will you choose investments to recommend to me?
- Help me understand how these fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me?
- How might your conflicts of interest affect me, and how will you address them?
- As a financial professional, do you have any disciplinary history? For what type of conduct? How can I verify this information?
- Who is my primary contact person? Is he or she a representative of an investment adviser or a broker-dealer? Who can I talk to if I have concerns about how this person is treating me?
If you have questions about your investments or your investment professional, you can call the SEC’s investor assistance line (800) 732-0330. You can also report a problem concerning your investments or report possible securities fraud to the SEC, or by emailing Help@SEC.gov. Follow us on Twitter and Facebook and sign up for updates on investing-related topics and news.
FINRA’s BrokerCheck (check out brokers and registered representatives)
NFA’s BASIC (check out derivatives industry professionals)