As an individual investor, you know that you should only invest money you can afford to lose, and you know you should diversify your portfolio. But, it is what you don’t know that can hurt you. Too often, investors think they are making informed decisions when in reality they are making mistakes that will end up leaving them with substantial losses.
So, what should you know before you invest in the stock market—either on your own or through a broker? Here are 10 lesser-known tips for investing in the stock market from our attorneys:
1. Make Sure You are Getting Your Information from Reliable Sources
These days, there is no shortage of investment “advice” online. When making investment decisions, it is critical to make sure you are getting your information from reliable sources. This means going directly to the source whenever possible (i.e. reviewing a company’s public disclosures through the SEC’s EDGAR database) and making sure you choose a reputable broker or advisor.
2. Only Invest in Assets You Understand
You should only invest in assets you understand. While brokers and advisors may recommend structured investment products such as equity-linked notes and leveraged exchange-traded funds (ETFs), these are complex investments that are only well-suited to sophisticated and high-net-worth investors. If you don’t understand an investment, you won’t know if it is performing well or poorly, and you won’t know when it is time to cut your investment losses.
3. Be Careful about What You Tell Your Stockbroker
When you start a relationship with a stockbroker, your stockbroker will ask you to fill out several different forms. It is important that you take the time to fill out these forms as accurately and completely as possible. In the event that you run into issues down the line, you do not want your broker to be able to say that you choose not to provide important information or that you misstated your risk tolerance or investment objectives.
4. Don’t Place Too Much Trust in Your Stockbroker
Even when you choose a stockbroker you can trust, it is important not to place too much trust in your investment professional. Unfortunately, even reputable brokers will engage in fraud. As an investor, you should not simply give your broker discretion over your account, but instead, carefully consider all proposed investments—including the fees they entail and the unique risks they present.
5. Monitor Your Investments Regularly
As an investor, you should also monitor your investments regularly. Review your account statements and trade confirmations, and keep tabs on your portfolio. Again, you should not blindly trust your broker, but instead, take a proactive approach to protecting your funds and investments.
6. Address Questionable Trades (or Other Concerns) Immediately
When monitoring your investments, if you notice any questionable trades (or other concerns), you should address them immediately. In many cases, taking action promptly will be critical for mitigating fraudulent investment losses.
7. Close Your Account If You Have Significant Concerns
If you have significant concerns about your broker’s or advisor’s fees or conduct, you should close your account immediately. Do not hesitate, and do not let your investment professional talk you into keeping the account open.
8. Know Your Legal Rights As an Individual Investor
Given the risk of investment fraud, it is important to know your legal rights as an individual investor. This includes your right to pursue securities arbitration when necessary to recover fraudulent investment losses.
9. Know How to Spot the Warning Signs of Stockbroker Fraud
While unscrupulous brokers (and scam artists) are finding increasingly sophisticated ways to defraud investors, there are still several common warning signs for stockbroker fraud. As an investor, it is important to familiarize yourself with the red flags so that you know when it may be necessary to take legal action.
10. Do Not Hesitate to Seek Legal Advice
Finally, if you have concerns about investment fraud, you should not hesitate to speak with an attorney. You can get a free consultation; and, if you have grounds to pursue a claim in securities arbitration, you will need your attorney to get started on your claim as soon as possible.
Need Help? Schedule a Free Consultation at Zamansky LLC Today
Do you have questions or concerns about investment fraud? If so, we can help. To schedule a free and confidential consultation with an attorney at Zamansky LLC, call us at 212-742-1414 or request an appointment online now.