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 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.

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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 registered with the SEC and licensed to do business in your state. And find out from your state's securities regulator whether the investment professional or her firm have ever been disciplined, or whether they have any complaints against them. You'll find contact information for securities regulators in the U.S. by visiting the website of the North American Securities Administrators Association (NASAA) or by calling (202) 737-0900.

You should also find out as much as you can about any investments that your investment professional recommends. First, make sure the investments 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.

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 prospectuses, and read them before you invest. If you have questions, now is the time to ask.

  • How will the investment make money?
  • How is this investment consistent with my investment goals?
  • What must happen for the investment to increase in value?
  • What are the risks?
  • Where can I get more information?