Buying in the dip: What to consider when investing during an economic downturn

You may hear the investing motto “buy the dip” being used a lot these days. This phrase refers to looking at economic downturns as lucrative investment opportunities – one that can bring you significant gains by buying investments at reduced prices. While the idea behind the motto certainly seems exciting for investors, the truth is that there are many considerations and risks to weigh before buying the dip in today’s economic climate. If you are thinking of investing during this time, consider the following beforehand to ensure you make wise decisions that meet your financial goals.

 

Have you considered whether the money you invest is money you can afford to lose?

Many Albertans are impacted by the economic downturn in their immediate day-to-day lives with reduced working hours, less income and even job loss. Over the long-term, this may affect current retirement accounts and future retirees’ ability to save. If you are looking to invest money with the hope of covering your bills or building back your retirement fund quickly, you could be setting yourself up for unsuitable investments and even potentially fraud. Review your current financial situation against your financial plan and consider whether the money you want to invest is money you can afford to lose, should the investment not turn out as expected.

 

Are you in the right head space to be investing?

Emotional investing spurred on from fear of missing out or not having enough money to meet your needs is dangerous as it can quickly expose you to unsuitable investments and fraudsters. Removing the emotional component from investing is hard, but by analyzing the investment against your risk tolerance (how willing and comfortable you are to the risk of losing your money on an investment), the risks of the investment, your financial plan and investment strategy can help you see the opportunity clearly and determine if it is right for you.

 

Have you considered the significant market risks?

We are living through unprecedented times. Rapid market volatility over the past few months has resulted in some of the sharpest declines and gains in the history of many stocks and indexes. While governments worldwide try to stem the impacts of COVID-19, the fact remains that no one knows what the market will look like tomorrow or over the next while. The investment world is full of speculation on when and how things will turn around. With this in mind, make sure you research the investment you are considering. Check to make sure the person selling the investment opportunity is registered to do so; investigate the validity of the product, solution or service that you are considering investing in; understand what the opportunity is offering; and, ensure you are comfortable with its risks.

 

Have you considered whether the investment opportunity you’re interested in is fraudulent?

When it comes to economic downturns, many fraudsters capitalize on the uncertainty, fear and financial strain that people experience to gain their trust and then to sell them false investments. Watch out for red flags. Anyone offering you an investment opportunity with the promise of significant returns with little to no risk is a major cause for concern. If it sounds too good to be true, it probably is. Make sure you always check the registration and disciplinary history of the individual or firm offering you the investment at CheckFirst.ca or call the Alberta Securities Commission at 1-877-355-4488.

This global economic downturn is bringing a lot of uncertainty and panic. While mottos like “buy the dip” seek to bring a positive outcome, you should never let fear or the expectations of great returns cloud the proper assessment of any investment opportunity. By taking deliberate actions with your investments, based on your risk tolerance and research, you can stay true to your financial plan and navigate the uncertainty of today’s investing market.

STOP! Steps to take before saying yes to an investment

When it comes to new investment opportunities, it’s hard not to be excited about the potential of significant returns on your money. While it’s ok to be excited, researching the investment and the individual or firm offering it is crucial to avoiding painful and avoidable losses.

In a recent Investor study commissioned by the Alberta Securities Commission, it was noted that many Albertans spend more time researching cars and vacations than researching investments. Only 47% of Albertans did two or more hours of research on their last investment versus 69% with two+ hours of research on their last vacation, and 79% the last time they bought a car. Considering your hard-earned money is at stake, spending more time investigating your investment opportunities is worth its weight in gold.

You can make wise investment decisions and, more importantly, protect yourself from fraud by following these easy steps:

1) Check if your financial adviser or firm is registered

Verifying that the registration of the individual or firm offering it to you is legitimate is an essential first step when considering any investment opportunity. By law, most security industry professionals and firms are required to register with the securities regulator in each province or territory they do business in. Registration helps protect investors like you from investment fraud as it signifies that the person or firm is recognized as being properly qualified and compliant with investor protection laws.

But remember, while registration can tell you if an individual or firm can offer and sell investments, they cannot guarantee their performance or success with your money.

2) Review the investment against your financial plan

When buying a vehicle, there are many different factors to consider from the number of passengers it can hold to the cost of maintenance and safety. Investments are no different and no one investment is suitable for everyone.

Create or review your financial plan that maps out what you’re looking to achieve with your investments. Saving for retirement? Investing for a down payment on a home? Along with your risk tolerance and willingness (the amount of money you are able and comfortable potentially losing ), your future goals and their associated timelines are all relevant details to consider before saying yes to any investment opportunity.

3) Understand what you’re investing in

Diversifying your investment portfolio across different industries is a great strategy to try and minimize any potential losses. When it comes to choosing investments, it is also critical to conduct research to understand the market, company, business and investment opportunity, and ensure it is credible. This is especially important in the fast-moving and volatile technology industry and emerging industries like cannabis and cryptocurrencies.

Conducting research also helps protect yourself from fraud. Scam artists often rely on investing trends to grab your interest and try to dissuade you from doing research that will quickly show the scam for what it is.

4) Know where to go for help

When it comes to investments, it is beneficial to walk through it with someone who is not involved. Lawyers and advisers can help you review the opportunity and identify details you may have missed, including unsatisfactory fees and even potential fraud.

A clear red flag of fraud is if you’re told to keep an investment opportunity secret. Scam artists use this tactic with the hopes that no one will call out anything suspicious. No credible adviser or firm should ever encourage this; if this situation happens to you, contact the Alberta Securities Commission and discuss it with a specialist.

Don’t let expectations of a great return gloss over the risks of any investment. Just as you take the time to thoroughly review a new car to ensure it’s not a lemon or plan the activities you want to do on your upcoming vacation, investments need the backing of proper research and planning to avoid potential negative results. With these four steps, you can make safe, suitable and informed investment decisions for your future.

 

 

Choosing the right financial adviser

Just as picking the right opportunity for your money is important, choosing a financial adviser that’s registered and matches your needs is critical when it comes to wise investing. A good financial adviser may help you manage your wealth and build a sustainable future based on YOUR risk tolerance, goals, experience and stage in life. As a key member in your investment journey, here are four questions to ask when looking for the right financial adviser that matches your needs.

1) Are you registered?

The first step any investor should take when looking for a financial adviser is to ensure they are legally allowed to be trading or advising in securities or managing investment funds. By law, individuals who are trading and advising in securities, including stocks, bonds, mutual funds, and ETFs, must be registered with the provincial or territorial securities regulator of the province in which they are doing business. Registration may help protect investors from investment fraud because securities regulators will only register firms and individuals that are properly qualified. Albertans can easily determine whether their financial adviser is registered by visiting checkfirst.ca and checking the registration of any individual or firm that is in the business of trading or advising in securities or managing investment funds, as well as if they have a record of any disciplinary actions.

2) How are you paid?

There are a variety of ways financial advisers are compensated, including salary, commission, flat fees, or a combination of these methods. When a financial adviser is paid by salary, the cost of their advice is included in the prices of the products you buy, whereas others may charge an hourly rate or a percentage of the assets in your account. As an investor, you have the right to obtain disclosure on how your financial adviser is compensated, as well as any costs paid to the registered firm associated with your account. This information may allow you to properly assess if a financial adviser meets your investing budget and help you avoid unwanted fees or charges.

3) What kinds of products and services do you offer?

Not all financial advisers offer the same products and services or have the same levels of expertise. While some can offer a wide range of options, others may specialize in only certain kinds of investments and only deal with clients who have certain levels of risk tolerance. If you are new to investing, working with a financial adviser that offers fewer products and provides more guidance may be more helpful. If you are a more experienced investor, you might want an adviser that offers more products and allows you to customize your portfolio.

4) How will you help me reach my goals?

Your goals from investing are unique to you alone, and no one investment portfolio will work for everyone. Before working with you, financial advisers should understand whether your investments are for financial security, income, long-term growth or something specific, such as retirement. Additionally, financial advisers will ask you about your financial situation (including your stage of life and any big expenses you might have coming up, such as a house purchase or paying for a child’s university tuition), investment knowledge, and risk tolerance. It’s important to be honest with your financial adviser so they can make recommendations that are appropriate for your needs. And remember to ask questions about anything you are not comfortable with or are unsure about.

Overall, take your time when choosing your financial adviser because this decision may be just as important as the investments themselves. Remember: financial advisers are working for YOU. By conducting the proper research and asking the right questions, you can ensure that you are working with a financial adviser with the expertise, products, services and fees that best align to your needs in order to meet your financial goals.