BEFORE YOU INVESTBefore you invest, consider your complete financial situation, looking at both your current and future needs. In general, investors should avoid higher-risk investments unless they have a steady income, adequate insurance and readily accessible cash reserves in case of a loss and most important, are willing to accept risk to their principal.
Some Important Considerations:
Call the New Hampshire Bureau of Securities Regulation at (603) 271-1463 for information on any of the following:
OR visit the FINRA Regulation Public Disclosure ProgramYou should also thoroughly understand the investment, including the risks involved, before you invest. Contact the appropriate regulatory agencies. Visit your local bookstore or library and educate yourself on appropriate investment subjects that interest you. Be informed and certain of what you are buying before you invest.
Protect Yourself Against FraudWhen you are contacted by phone or in person to make an investment, you should ask the following questions and write down the responses:
Asking these questions is the beginning of the investigatory process. But remember, a skillful presenter will have answers to all of your questions. It is your responsibility to verify the information you receive in response to the questions asked above. You can determine if some of the information you have been given is accurate by calling the relevant numbers and firms listed.
Setting Your Investment GoalsAsk yourself, "What do I want to accomplish through my investments?" For most investors, the following investment goals or objectives, or some combination of these, provide an initial answer to that question:
SafetyThis objective reflects a conservative investment philosophy with minimal risk of loss of the original investment (the "principal").
IncomeAn "income" objective is achieved by purchasing investments that provide a stream of income through regular payments, which may or may not decrease the invested principal.
GrowthThis category refers to investing for long-term growth or appreciation in market value. Growth investments carry a higher risk than either safety - or income - oriented investments. Growth investments generally provide little or no dividend income.
SpeculationSpeculative investments carry a higher than average possibility of loss. This strategy often includes short-term trading of new or unproven companies' stocks or options. Although there is the possibility of higher and faster rewards, speculative investments also are high risk, meaning there also is the possibility of larger and faster losses of some or all of your principal.
Balance "risk" and "return" to meet your goalsAs an investor, you choose your investment goals with an emphasis on one or more of the above categories. You may also wish to allocate portions of your investment portfolio to more accurately express your investment goals.
Of course, setting a goal and reaching it are two very different things. You may need professional assistance to realize your investment goals and to achieve your financial objectives.
If you choose to work with a broker, communicate your investment goals and financial objectives clearly. Put them in writing and keep a copy for your own records.
Remember, the more money you want to make from your investments, the more risk you must be willing to take. Risk means that you may lose all or part of your principal. If a high level of risk makes you uncomfortable, select your investments accordingly.
SuitabilityThe basic concept in securities law regarding whether a recommended investment is appropriate for a particular investor is known as "suitability." Any investment professional should be able to articulate why an investment recommendation is suitable for your needs. Do not be afraid to ask many questions, no matter how basic they may seem to you.
There are many sources of information about any company in which you may be contemplating making an investment. If you don't know where to look, start by contacting the New Hampshire Bureau of Securities Regulation. Securities must be registered or exempt from registration in each state where they are sold.
Information about the company may be available to the public. You should also ask your brokerage firm or investment adviser to assist you in gathering information about the company in which you may invest.
Most companies whose stock is traded "over the counter" or on a stock exchange are required to file "full disclosure" reports on a regular basis with the Securities and Exchange Commission (SEC). These comprehensive reports are available for a modest copying charge by writing to:
Public Reference Room, Mail Stop 1-2Securities and Exchange Commission450 Fifth Street, NWWashington, D.C. 20549-1002
Pay attention to business and financial newspapers in your area. Often, these periodicals provide in-depth coverage about a specific company or segment of the industry. Check with your local reference librarian for assistance in identifying appropriate investment-related materials.
One of the very best ways for an investor to protect himself or herself is through adequate information, education and consultation of available resources.
AFTER YOU INVEST Your investment responsibilities don't end once you've selected a broker and an investment.
Some of the more important responsibilities are:
If something goes wrong, it's important to recognize the problem quickly and take appropriate action.
How to Keep Your Securities Safe When you purchase shares of stock or a bond, you may receive a certificate representing your ownership. These valuable documents should be kept in a safe place. It is costly and time-consuming to replace a certificate if the original is lost or destroyed.
If you purchase stock through a brokerage firm, you usually have three choices regarding how your stock certificates are handled:
A certificate showing the number of shares purchased may be made out in your name and delivered to you. When you sell the stock, you must in turn endorse the certificate and deliver it to your broker.
The stock certificate may be held in your name at the brokerage firm. Although the certificate must still be endorsed when you sell, this option eliminates storage concerns.
A very common practice is for your broker to hold the stock certificate in "street name". The brokerage firm will be listed as the shareholder of record, even though you are the actual owner. The broker must forward to you any mailings by the corporation, such as annual reports and proxy materials. This may cause some delay. However, the transfer process is much simpler when you sell the stock. If you elect to have your securities held in street name, you can request that dividends or interest payments be forwarded to you.
Be sure to discuss these options with your broker and decide which is right for you. Ask whether the broker charges additional fees for holding stock in the street name, and ask about any related custodial fees.
Monitoring Your Account After you've invested, you should receive periodic account statements. You will also receive confirmations for each trade as it occurs. Don't throw them away. Read each confirmation and account statement, and make sure that they accurately reflect the trading activity that you have authorized in your account. Check to see how much of a commission you were charged. You should expect to be informed in advance of any increases in charges, such as commissions and custodial fees.
As you monitor your confirmations and account statements, follow up immediately on anything that you do not understand. Investors who fail to do so are sometimes said to have "ratified" transactions that otherwise might not have been appropriate or authorized. This can make pursuing your legal options that much more difficult. If you do not receive prompt assistance from the broker-dealer, contact the Bureau of Securities Regulation.
Designate a file folder for storing all investment-related information. As soon as you've received and reviewed the confirmation slips and monthly statements from your broker, file them. If you have a dispute with your broker regarding your investment, this file may be invaluable.
What to Expect From Your Broker When you fill out your new account form, you provide the broker with information about your financial situation, your investment objectives and the level of risk you are willing to take.
You have a right to expect your broker to follow your instructions and to recommend appropriate investments. As noted above, securities regulators use the term "suitability" to refer to the question of whether a broker's investment recommendations are appropriate for a given investor.
Although you are not protected from a decline in the value of securities due to normal market risks, you may have certain legal rights if a broker's recommendations were unsuitable based on your financial objectives and situation.
Commissions and Churning A broker's earnings are based on sales commissions or markups. The more buying and selling a broker does for each customer, the higher his or her income. Unnecessary buying and selling is called churning. If you suspect that certain recommendations have been unsuitable or that your account is being churned, immediately contact the Bureau of Securities Regulation.
If You Have Problems Regardless of how careful you are in selecting a broker, problems may still occur. Contact your broker at the first sign of trouble and clearly communicate your concerns. Ask your broker for a written reply explaining the handling of your particular problem. You also should file a written report of your problem with the home office of the broker's firm. Call the Bureau of Securities Regulation for the appropriate contact person and address.
If you aren't satisfied with the result, or if this process takes more than 7 to 10 days to complete, contact the Bureau of Securities Regulation. Although your initial contact may be over the phone, we may ask you to document your complaint in writing. You should be prepared to list specific details of your investment, including dates, amounts and types of securities. Often, copies of your account statements or other documents attached to your complaint will help to explain the situation.
Always keep a copy of any complaint letters you send and the responses you receive. These documents may be of great benefit to you later.
You may also need to consider consulting a private attorney for assistance in resolving a securities dispute. While regulators will investigate for violations of securities laws and rules, regulatory agencies cannot directly represent investors. In some instances, the only way to recover your investment may be through a private lawsuit or arbitration proceeding.