Developing the right mindset and processes to invest wisely and avoid fraud

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For any investor, novice or experienced alike, there can be pitfalls and challenges that potentially lead you to making unsuitable investments.  These pitfalls include cognitive biases, poor planning, and even missing the red flags of fraud. To help you recognize these pitfalls and define sound practices and behaviours that will help you improve your approach to investing, consider the following core principles.

Behaviour and mindset – Investing is not just the act of buying or selling investments. It is also about your mindset and processes. Over confidence, anxiety, and the fear of missing out can lead you to jump into inappropriate investments that are tied to hot trends and new innovations, or fall prey to fraudulent or misguided get rich quick schemes. The best way to avoid these challenges is to refine your processes.  Start by developing a financial plan and goals before you actually make that first investment. Your plan doesn’t have to be complicated, but by having your goals laid out can help you maintain your focus and avoid the noise and distractions in the market. For investors that recognize that their emotional discipline may not be strong enough to avoid these traps, the assistance of registered investment professionals may be needed. Utilizing the services of a registered financial planner or financial advisor may provide the dedicated service, and peace of mind, to help you choose the suitable investments that will help you achieve your financial goals.

Investment literacy and fraud knowledge – To invest successfully, start by developing your understanding of securities, in addition to investing principles and strategies. As you build your knowledge and your portfolio, you may want to explore more advanced investments like exempt market securities, options trading or even crypto assets. Recognize the limitations of your investment knowledge and consider taking time to talk to registered investment professionals and assess what new investment opportunities might fit best within your financial plan and risk tolerance (your ability and willingness to take risk with your money).

While knowing the inherent risks to investments is essential, understanding and recognizing the risks of fraud and scams is just as important. A recent study conducted by the Alberta Securities Commission (ASC) found that nearly half of Albertans have been approached by what they felt was possibly a fraudulent investment opportunity. Some of the key signs of fraud include promises of high return rates with little to no risk, exclusive or time-sensitive investment offers, offshore and tax-free investments, and insider tips. Understanding these signs and the situations and scenarios in which they can be presented can help you better safeguard your money and assets. To learn more about investment scams and how to recognize, avoid and report them, investors should review the red flags and scams sections of CheckFirst.ca, brought to you by the Alberta Securities Commission.

Proactive measures – By taking a few proactive steps you can help reduce the chances of your portfolio underperforming, and prevent you from taking on unsuitable investments and falling for fraud. Some suggested steps include thoroughly researching the legitimacy and suitability of investments before investing and regularly monitoring the performance of your investments and your portfolio as a whole. By taking the time to do this, you can better validate new investment opportunities and ensure your existing investments are tracking towards your goals.

In addition to these proactive measures, one of the most important steps you can take before investing with any financial advisor, firm or brokerage, is to conduct the necessary due diligence. Generally speaking, financial advisors, firms, and brokerages must be registered to offer you securities. By checking registration at CheckFirst.ca, you can ensure you are working with registered professionals and businesses that are compliant with securities law before you hand over your money.

Investing wisely may seem complicated, but following these core principles as part of your investing process will lead to a more successful and enjoyable journey and help you avoid common mistakes and fraud.

Four steps to take before jumping into crypto investments

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The increasing popularity of crypto assets and the ongoing media coverage of coins like Bitcoin and Ethereum have piqued the interest of many new and experienced investors alike. Whether you’re interested in investing in crypto assets or simply learning more, consider the following before jumping in:

1) Understand your risk tolerance
Crypto assets are high-risk alternative investments that have the potential for high returns. Judging the inherent value in any crypto asset can be difficult, with its values largely determined by its evolving utility, public interest and the current levels of supply and demand. Before investing in any security, a crucial first step is to weigh the risk of the investment against your risk tolerance. Risk tolerance is your ability and willingness to take risks with your money. By recognizing the amount you can afford and are comfortable with potentially losing in a crypto investment, the more likely you are to invest suitably. If you are unsure of your risk tolerance, you can take the risk tolerance quiz at CheckFirst.ca.

2) Be mindful of the crypto asset trading platform you choose to use
The popular way for many investors to buy or trade crypto assets is through a crypto asset trading platform. If you are considering using a trading platform to buy and sell crypto assets, it is strongly advised that you use one that is registered with the Alberta Securities Commission (ASC). If a crypto asset trading platform is not registered, there are no assurances that any of the typical investor protections may exist, including secure handling of client funds, safekeeping of client assets, protection of personal information, pre-trade disclosures, and measures against market manipulation and/or unfair trading. To check the registration of any crypto asset platform, use the check registration tool on CheckFirst.ca or the list of registered crypto asset trading platforms across Canada on the Canadian Securities Administrators website.

3) Be cautious of crypto scams and frauds
Fraudsters are always looking for the next big trend or buzzworthy event to leverage. As crypto assets continue to generate excitement with new and potential investors, fraudsters will continue to take advantage of people’s interest to promote crypto scams. Be mindful that many crypto scams involve one or more of the following:

  • Unusual requests for payment like wire transfers or the transferring of crypto assets from one platform to another.
  • High-pressure sales tactics, confusing jargon and complex documentation regarding an investment opportunity.
  • New initial coin offerings with limited or no documentation like whitepapers on the coin or the coin’s founders.
  • Promises of high returns with little to no risk.
  • Unsolicited crypto investment offers online, over social media and in dating apps.

4) Strengthen your investment literacy and conduct thorough research
Investing wisely in new alternative investments like crypto assets requires you to strengthen your knowledge to ensure that you fully understand the investment opportunity before you hand over your hard-earned money. Before investing in a crypto asset, visit the Innovation in Finance section of the Alberta Securities Commission’s website for important questions you should consider asking.

Crypto assets are high-risk investments that are not suitable for all investors. The nature, longevity and future application of crypto assets are largely unknown and evolving. While the excitement can be overwhelming, taking the time to learn about crypto assets before investing can help you invest suitably and avoid scams. Learn more about crypto assets at CheckFirst.ca.

STOP! Steps to take before saying yes to an investment

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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.