Here at FINRA, we do our best throughout the year to offer important tips about a range of investor topics. They are all useful (at least we think so, anyway), but some are truly essential to financial health -- the kind of information you'll want to avoid getting into the kind of financial trouble from which you might never fully recover.
Here are nine super-charged investor tips to start your 2019 on the right track.
1. Take control by saving for retirement. If you insist on waiting until you have "enough" money to invest in your own retirement, you might find your definition of "enough" growing and growing, and you might never start at all. When you wait, you miss out on your money growing over time. Have an employer? Talk to your human resources department, supervisor, or business owner about an employer-sponsored savings plans, such as a 401(k). No plan or self-employed? Open an individual retirement account (IRA) by contacting a financial services firm.
2. Establish a rainy day fund. About 34% of respondents to the FINRA Foundation's National Financial Capability Study said they probably or certainly could not come up with $2,000 in an emergency. That inability to pay can make a tough financial situation worse, especially if you have to take on debt to pay the bills or go without vital services such as car repairs or healthcare.
3. Know what you own. Each type of investment has pluses and minuses, and it's important to know what they are for each product you own. For instance, stocks tend to return more over the long term than bonds (a plus), but stocks as an asset class are also more volatile than bonds (a potential minus, especially if you need the money relatively soon or when the market moves against you). Big problems can occur if you are more concentrated than you realize, fail to understand costs like surrender charges (variable annuities have them), or hold too much of an illiquid investment like a non-traded REIT.
4. Stay (or get) diversified. 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 among and within different asset classes. Diversifying among assets classes typically involves holding a mix of stocks, bonds, and cash. Diversifying within an asset class means dividing the money you've allocated to a particular asset class among various categories of investments that belong to that asset class. For example, if you own stocks, you can diversify within that asset class by owning stocks of companies from different sectors.
5. Check out your investment pro. BrokerCheck, a free online tool provided by FINRA, offers a wealth of background information about brokers, brokerage firms, and other investment professionals. It's a good idea to regularly check out both the person and the firm managing your money. With BrokerCheck, you can check your money manager's work history, qualifications, state licenses, and, importantly, any regulatory actions, violations, or complaints made against them. If the person or firm you are checking isn't in BrokerCheck, watch out. Trusting your money to an unregistered individual is a good way to lose your life savings.
6. Run any new investment by others. Heard a hot tip? Thinking about a play in cryptocurrencies or an initial coin offering? Before you invest, check in with a registered investment professional, seasoned investor, or CPA. It's also a very good idea to run any new investment by your spouse, your significant other, or a trusted friend or family member known for good judgment (we all know someone like that). Bad things happen when people invest in a vacuum. Bonus tip: If you research an investment online, also research the source of that info. Websites and investment information can be deployed by promoters or outright scammers.
7. If you get a cold call -- put any investment decision on hold. Not every investment offer that comes out of the blue is a scam, but don't be hasty about signing on to unsolicited offers. When you are on the spot, your emotions might not be in check, and your judgment can be clouded. In fact, fraudsters often try to trigger such emotions to get individuals to fall for their scam. Hanging up is a viable option. If it turns out to be a promising opportunity, it will be there when you are ready to invest, and if it's not, you saved yourself a headache and a potential financial loss.
8. Always remember that higher return comes with increased risk. The promise of higher return is almost always associated with greater risk and an increased possibility of investment losses. For example, a bond that offers a higher yield is likely to have a lower credit rating or other qualities that compel the issuer to offer a higher return to compensate you for the added risk you are taking. Only you know how much risk you are willing to take with your money, so make sure your investments align with your risk tolerance.
9. Be alert to fraud -- especially if you (or your parents) are closer to (or in) retirement. There are many stories about older investors -- particularly single seniors -- being exploited by scammers. Consider adding a trusted contact to your account -- someone you trust who can work with your investment professional to help keep your account safe.