Assessing Investment Management Products
Before you invest, do your research. Review all of the available investment products to determine whether your broker is investing with your best interest in mind. We regularly see cases where investors took on obvious risk when lower-risk investments were readily available. Risk comes with all the listed investment product types. Communicating specific financial goals as well as your risk tolerance to your broker can save you many headaches down the road.
Basic Information About Investments
There are various investment products available to help you reach whatever financial goals you may have. The primary types of investment products are:
- Bonds
- Stocks
- Mutual Funds
- Exchange-Traded Funds (ETFs)
- Variable Annuities and other insurance products
Investment product types vary in terms of their anticipated returns and level of risk. Notably, securities within these product types may have different investment strategies. Your broker should always research an investment, even if they are recommending a product type that has generated healthy returns in the past.
What is Risk and Return?
When choosing which types of investment products are right for you, consider: How likely is it that your investment will lose money? That’s the risk. The return is the gradual increase in your investment’s value. Typically, when the investment risk rises, it means investors are looking for a higher return. If you’re not careful, however, you could quickly lose all the money – including the principal – that you put into high-risk investment products.
Other Considerations for Investment Products
As well as risk and return, there are other things to take into account when choosing investment products:
- Fees: How much will it cost you to invest?
- Asset Allocation: Have you diversified your investment management products?
- Liquidity: Is it easy to buy and sell the investment product types you’ve selected?
- Fraud: What is the potential for investment fraud?
10 Low-Risk Investments
Investments protected by the federal government are among the safest you can choose, although they grow at a slower rate than riskier alternatives. Low-risk types of investment products include:
- High-Yield Savings Accounts
- Savings Bonds (Series I)
- Short-term CDs (Certificate of Deposit)
- Money Market Funds
- T-Bills (Treasury Bills), Notes, Bonds, and Treasury Inflation-Protected Securities (TIPS)
- Corporate Bonds
- Stocks That Pay Dividends
- Money Market Accounts
- Fixed Annuities
10 High-Risk Investment Products
These are the types of investment products to avoid if capital preservation is your goal.
- Options: Gives the purchaser the right to buy or sell an asset at a certain time and price.
- Futures: Speculative investments that try to guess the future price of securities or commodities.
- Energy Investments: Exploratory drilling for oil and gas, for example, is always a gamble.
- Leveraged Exchange-Traded Funds: Investors use borrowed money) in an effort to realize substantial capital gains.
- Hedge Funds: Investors rely on a hedge fund manager’s reputation and may not realize the full risks associated with these investments.
- Private Placements do not have to disclose as much information to the public as they would with an IPO. These investments are typically only sold to exceptionally wealthy investors.
- Penny Stocks These stocks sell for less than $5 per share and aren’t listed on the national stock exchange. Small start-up companies typically issue penny stocks.
- Alternative Investments: These complex, high-risk securities are best left to experienced, wealthy investors who understand the potential rewards and risks.
- Junk Bonds Indebted companies issue junk bonds as a last-gasp effort to stay solvent.
- Cryptocurrency: The viability of Bitcoin and other cryptocurrencies is debatable. There are many unknowns associated with decentralized finance, and unknowns always come with significant risk.
- Inverse Exchange-Traded Funds (EFTs): These complicated investment products are only viable for experienced investors who can handle significant risk.
- Reverse Convertible Notes FINRA (Financial Industry Regulatory Authority) issued a warning to investors about the high risks associated with this type of investment.
Are You the Victim of Badly Managed Investment Products?
If an unscrupulous financial professional defrauded you, Kurta Law is ready to help. Our investment fraud attorneys will work to recover the money that is owed to you. We have years of experience dealing with dishonest brokers who have ruined our clients’ financial security by suggesting high-risk investment products, overcharging for their commission, and committing fraud. Call us today to discuss the best course of action for you.