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BETTER INVESTING PLAN
Consumers have numerous choices when it comes to choosing how to invest their money. Most investors choose bonds, stocks and mutual funds. Those with the right expertise, or the help of an investment advisor, may wish to invest in gold, real estate or other alternatives.
All investments come with risks, and determining which investment option is right depends on a consumer’s financial situation and goals. The investment company industry is comprised of a broad range of company types and services, so all investors can find someone to help them with the kinds of investments they want to make.
Whether you’re saving for retirement or just managing your money wisely, an investment firm can be a huge benefit the best ones offer online access to your money at any time, guidance that demystifies complex financial topics, and gives you the freedom to make your own decisions. This week, we’re looking at five of the best, based on your nominations.
Earlier in the week we asked you for your favorite investment firms, whether they’re the best company you’ve worked with personally managing your own money, or you just enjoy working with them to save for retirement, or keep your IRA or 401(k) in good order. You offered tons of great firms and options that involve staying a step back from those firms and working with more consumer-friendly financial advisors. Here are your top five, in no particular order:
Trustworthiness
When someone is giving you investing advice, it is important that you trust them. Many factors can help you determine whether or not the individual advisor or firm is trustworthy.
- Regulatory registration: Ask whether the investment firm or individual advisor is registered with the Securities Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), the Community Futures Trading Commission (CFTC) or the regulatory agency in your state. You can check their registration on the SEC, CFTC or FINRA websites. Visit the North American Securities Administrators Association website to find the state organization where an advisor would need to register.
- Fiduciary or suitability standards: Ask whether your advisor will be bound by fiduciary or suitability standards. Legally, registered investment advisors must either meet fiduciary or suitability standards. Under fiduciary standards, the advisor must advise you to make investments in your overall best interest, while suitability standards only require an advisor to recommend products that are suitable for your current financial portfolio. Following suitability standards, advisors might recommend products that will earn them more money, even if a different product might be best for you.
- SIPC member: If you’re investing in the stock market, choose a firm or agent that is a member of the Securities Investment Protection Corporation (SIPC). The SIPC insures that consumer assets, up to $500,000, will be protected if the firm goes out of business and investor assets are missing. Note that the SIPC does not protect investors from losses due to market changes.
- SIPC member: Not all types of investments or investment advisors are eligible to register with FINRA or the SEC or to be a member of the SIPC. If you’re investing in products not regulated by those organizations, consider how long the investment company of agent has been in business. A long history can indicate how reputable and stable the firm is.
- Common sense: It’s important to use common sense when investing. If someone offers an investment that seems too good to be true, it probably is. Trust your judgment, and don’t give money to individuals or businesses without thoroughly researching their qualifications and the kind of investments they’re recommending.
Investment options
You can invest in many different types of products. Think about your investing goals and how comfortable you are with risk because these factors should determine which products you choose. Research different kinds of investments and then pick a company that offers those.
- Securities: A security is simply something that shows partial-ownership, equity or a creditor’s relationships with a company or the government. Stocks, bonds and options are all types of securities. If you buy individual stocks or invest in a mutual fund that includes stocks and bonds, you’re investing in securities. Most investment firms offer securities.
- Real estate: You can invest in real estate by purchasing property yourself or by investing money with a real estate investing company. Most of these companies operate Real Estate Investment Trusts (REITs), which work much like a mutual fund in that your money is combined with other investors’ money to make a larger purchase than any of you could make individually. REITs are traded both on the stock market and through private investment companies.
- Precious metals: Gold, silver and/or platinum are important parts of some portfolios. If you’re interested in purchasing gold and silver, you can purchase exchange traded funds (ETFs) or futures, which make it possible to trade precious metals on the New York stock exchange. You can also order coins or bars and keep the metal in your possession. Some investment companies offer certificates, much like bank Certificate of Deposits (CDs), which allow you to own bullion without possessing it.
- Hedge funds: Hedge funds are similar to mutual funds in that many investors’ funds are combined and profits and losses are shared among the group. However, these investments use more speculative practices than mutual funds. The SEC and state regulatory agencies do not regulate hedge funds in the same ways they regulate mutual funds, and investors do not have as many legal protections when investing money in hedge funds.
