DOB: Questions for Informed Investors

 The Informed Investor

Questions for Informed Investors

Before You Invest ...

Before you invest, take time to think about your overall financial situation and investment goals. You are not ready to invest until you have carefully considered these basic questions, for which every informed investor should know the answers:

{Investor considering a decision}
  • Do you have money to invest?
  • What are your investment goals?
  • How much risk are you comfortable with?


Do you have the money to invest?

Your financial well-being depends on careful planning. Assess whether making an investment at this time is the best use of your money. Here are some things to consider:

  • Do you have enough money to cover personal family expenses?
  • Are you carrying adequate life, disability, property and liability insurance?
  • Would it be wiser to use extra funds to pay off debts or reduce your mortgage rather than making investments?
  • If you have money available after meeting these basic financial needs, you are ready to think about your investment goals.

What are your investment goals?

Decide why you are investing and what you want to achieve. Once you have determined your investment goals, you will find it easier to choose an investment that will meet your needs.

You may invest for a variety of reasons:

To meet short term goals like saving for a house, a car or a vacation. Investors with short term goals often invest in certificates of deposit (CDs) or money market mutual funds or accounts.

To earn investment income, which will supplement your other income. Bonds, preferred stocks or income mutual funds might be appropriate if investment income is your goal.

To achieve long-term growth so that you will have money for your children's education or for your retirement. Suitable investments for a long-term growth include common stocks and equity mutual funds.

To minimize taxes. Investing in an Individual Retirement Account (IRA) may be one way to minimize your current taxes.

Once you've determined your investment goals, you must decide how much risk you are willing to take to achieve these goals.

How much risk are you comfortable with?

Different investments have different levels of risk. Keep in mind that an investment offering a higher return always carries a higher level of risk than one offering a lower return.

For example, certificates of deposit, insured by Federal Deposit Insurance Corporation (FDIC) up to $100,000, or money market funds are relatively safe, but generally pay lower rates of return. Common stocks of growth companies are riskier: they have the potential for greater gains and greater losses.

Decide how much risk you are comfortable with. Are you a conservative investor, concerned above all about safety of your capital and stability? Are you an aggressive investor, prepared to take higher risks for the possibility of greater returns? Or are you a moderate risk-taker, falling somewhere between?

Investing your money shouldn't be an experience fraught with anxiety. Determine how much risk you are comfortable with and choose your investments accordingly.

Once you have a clear idea of your investment goals and how much risk you are willing to assume, you are ready to start looking at specific investments.

Investor's Checklist . . .

Being a wise investor means taking the time to examine each investment before signing on the dotted line. Here's a checklist of questions to ask yourself before committing to an investment. If you answer "yes" to most of these questions, the investment should be suitable for you. However, if you frequently answer "no," be cautious about going ahead.

This checklist is meant to be a starting point. You should seek advice from competent, experienced professionals to help you make investment decisions.

Is the Investment Right For You?

Does the investment meet your personal investment goals? Whether you are investing for long term growth, investment income or other reasons, an investment should match your own investment goals.

Are claims made for the investment realistic? Some things really are too good to be true. Use common sense and get a professional opinion when presented with investment opportunities that seem to offer unusually high returns compared to other investment options. Pie in the sky promises could spell investment fraud.

Do you understand and accept the risks involved with the investment? Every investment involves some element of risk. You should know what these risks are and be prepared to accept them. If you can't afford the risk, don't take it.

Are you putting too much money into one investment? Putting all your eggs in one basket is a risky proposition. If the investment fails, you stand to lose everything. Wise investors put their money into a variety of investments to achieve a balanced portfolio and to spread their risk around.

Can you sell the investment when you want to? Find out if you can sell the investment and, if so, how. Can you sell it through an exchange where sales are made easily and quickly--or do you have to find a private buyer who may not be so easy to find when you want--or need--to sell in a hurry?

Are you familiar with the conditions that apply if you withdraw from the investment? Find out if there are any restrictions or penalties that apply if you want to withdraw from or sell the investment in the future. Sometimes you end up paying a substantial penalty if you want to cash out early.

Do You Understand the Investment?

Has the seller given you written information that fully explains the investment? Make sure you get proper written information, such as a prospectus or offering circular, before you buy. The documentation should contain enough clear and accurate information to allow you to evaluate the investment.

Have you read the information? Reading the written information carefully is one of the most important steps in making wise investment decisions.

Do you understand the investment after reading the information? Don't commit to an investment you don't understand. Get professional advice if you have trouble figuring out from the promoter's written information just what the investment is all about.

If you do make an investment, keep copies of the written information and all records of your transactions in case there are problems in the future, and for tax purposes.


How We Can Help

The Securities Division, as well as the federal Securities and Exchange Commission, regulates how securities are sold in Connecticut. If you have questions about investments, please contact us.    We can't tell you how to invest your money.  We can, however, tell you if the person selling the investment is properly registered.

Contact the Division for answers to these questions:

{*} Is the seller registered/licensed to sell securities in Connecticut?

{*} Has written information that you received about the investment been filed in Connecticut?

{*} Does the investment comply with Connecticut's securities laws?


This publication is adapted from a fact sheet prepared by the Council of Better Business Bureaus, Inc. and the North American Securities Administrators Association.  Better Business Bureaus in the United States and in Canada can answer inquiries on companies located in the areas they serve. Before investing your money with anyone with whom you are not familiar, it is a good idea to contact your local Better Business Bureau for a reliability report on the company you are thinking of dealing with.