HARRISBURG (PRNewswire-USNewswire) – The Pennsylvania Securities Commissioners recommend one of the most important resolutions investors can make during 2007: Investigate before you invest.
Chairman Robert M. Lam noted that, “once the money is handed over to a fraud artist, it is not likely to be recovered. More and more often, the aging baby boom population is confronted with the need to make important decisions about how to invest their retirement nest eggs.”
Overall, the stock market is doing well, but some people are fearful of being left behind financially. That makes retirees vulnerable to salespeople promising a higher-than-normal return — without risk.
“These two factors just do not go together,” explained Commissioner Thomas Michlovic. “Returns are usually pegged to risk, and high returns are generally an indication that the investment is risky! If someone is promising a return that seems too good to be true, it probably is too good to be true.”
Recently the Commission has seen a dramatic increase in the number of SPAM email messages touting little-known cheap stocks. This type of activity usually indicates a “pump and dump” scheme. Fly-by-night promoters hype on cheap stock while selling their shares to gullible investors. When the promoters stop pumping up the stock artificially, the price drops and the investors lose all.
Another serious threat to investors comes from salespersons who claim expertise in giving seniors financial advice over a free lunch or dinner. Too often, their goal to entice the attendees to liquidate an existing stock or mutual fund portfolio to invest it in a single complicated product, such as a variable annuity, an indexed annuity or an indexed certificate of deposit.
Commissioner Steven D. Irwin added that, “these products may be useful tools for some investors in some circumstances, but they are unsuitable for many others – particularly senior citizens. In a room of 20 people, it is highly unlikely that a single product will be suitable for all!”
Before investing, all three Commissioners urge consumers to ask and answer these questions:
1. Why am I being offered this deal? Is it registered?
2. Who is offering me this deal? Are they registered?
3. Why am I interested in this deal? Do I want to gamble?
4. Can I sell it if I need to?
5. Can I afford to lose my entire investment?
6. Do I understand the risk of loss?
7. What is the basis for the purchase price?
8. What do I know about management?
9. Where is the business located and how long has it been in business?
10. If you do not understand the investment, consult a professional.
Call the Pennsylvania Securities Commission at 1-800-600-0007 or visit www.psc.state.pa.us to check whether the proposed product is registered and whether the person recommending the purchase is registered.
Remember, if it sounds too good to be true, it probably is.
