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The SEC’s Office of Investor Education and Advocacy, FINRA, the Commodity Futures Trading Commission (CFTC), and the North American Securities Administrators Association (NASAA) are issuing this Investor Bulletin to highlight key messages from World Investor Week 2018.   

World Investor Week is a global campaign by the International Organization of Securities Commissions, of which the SEC, CFTC, and FINRA are members, to raise awareness about the importance of investor education and protection.  From October 1-7, 2018, individual investors, investment professionals, teachers, parents, researchers, and other interested individuals, firms, regulators, and organizations are encouraged to make a special effort to promote investor education.

Following are some key tips to bear in mind for World Investor Week 2018:

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.

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.

Understand the Risks and Fraud Potential of Initial Coin Offerings

Investing in 2018 may be marked by the proliferation of initial coin offerings, or ICOs.  Cryptocurrencies and ICOs have experienced rapid growth in recent years and have drawn the attention of individual and professional investors alike.  ICOs have also caught the attention of fraudsters.  Investors need to keep in mind that an attractive and alluring ICO website with seemingly friendly and reputable personnel biographies and well-prepared white papers can easily be fraudulent.  If you’re thinking about investing in an ICO, check out the SEC’s HoweyCoins.com for a can’t miss opportunity, FINRA’s Alert, Initial Coin Offerings—What to Know Now and Time-Tested Tips for Investors, and NASAA’s video, Get in the Know About ICOs.

With the advent of any new technology come new investment opportunities.  Many ICOs represent investments in new and early-stage businesses and early-stage investing is marked by high risk.  You should know the risks of your investment, including that you could lose all of your investment.  In addition, there could be a possibility that an ICO is fraudulent. 

Don’t Invest Just Based on Celebrity Endorsement

Similar to endorsements on products and services, some investment opportunities, including in the ICO space, may engage a celebrity to endorse and promote the investment.  But a celebrity endorsement does not mean that an investment is legitimate or that it is appropriate for all investors.  It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment.    

Don’t Invest Using Your Credit Card

Using your credit card to purchase products and services is available almost everywhere and for seemingly anything.  However, despite this prevalence, using a credit card to make an investment is not typical and may be a red flag for fraud.  You should understand that most licensed and registered investment firms do not allow their customers to use credit cards to buy investments or to fund an investment account.

Conduct Due Diligence with All Investments and Investment Professionals

Whether investing in a U.S. Treasury bond, a Fortune 500 company listed on a national stock exchange or an ICO opportunity, a smart investor will always conduct due diligence on the investment.  Due diligence is another way of saying carefully researching the investment opportunity to make sure it is a smart decision.  If you can, find third party sources of information about the investment.  It’s the same as when you check online reviews of something you’re planning on buying or a place that you are deciding whether to stay.  In other words, be careful where put your hard-earned money and don’t rely on just what the promoter of the opportunity is telling you. 

Know the Value of Diversification

Diversification helps protect the value of your portfolio if one or more of your investments perform poorly. Learn how to apply this key concept to your portfolio. When you diversify, you aim to manage your risk by spreading out your investments. You can diversify both within and among different asset classes. You can also diversify within asset classes. In this case, you divide the money you’ve allocated to a particular asset class, such as stocks, among various categories of investments that belong to that asset class.

Additional Resources

Spotlight on Initial Coin Offerings and Digital Assets

FINRA Investor Alert:  Initial Coin Offerings: Know Before You Invest

NASAA Informed Investor Advisory: Initial Coin Offerings

CFTC Customer Advisory: Use Caution When Buying Digital Coins or Tokens

CFPB Consumer Advisory: Virtual Currencies and What You Should Know About Them

For additional investor educational information, see the SEC’s website for individual investors, Investor.gov.

The Office of Investor Education and Advocacy has provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.