How to: Invest Online Wisely

You should be skeptical of investment opportunities you learn about through the Internet. When you see an offering on the Internet - whether it's on a company's website, in an online newsletter, on a message board, or in a chat room - you should assume it's a scam until you've done your homework and proven otherwise.

Get the facts before you invest, and only invest money you can afford to lose. You can avoid online investment scams by asking - and getting answers to - these three simple questions:

  • Is the investment registered? Some smaller companies don't have to register their securities offerings at the federal level, so in addition to contacting with the Securities and Exchange Commission (SEC) always check with your state securities regulator as well. You can research the investment online using the SEC's EDGAR database at (web address). To contact your state regulator call the North American Securities Administrator's Association (NASAA) at (202) 737-0900 or online at (web address).

    The fact that an investment is registered does not guarantee that it will be a good investment. Likewise, the fact that the investment is not registered does not necessarily mean it is a fraud. In either case, in an effort to decrease the possibility subjecting yourself and your money to a scam, it is highly recommended that you call your state securities regulator One simple phone call to your state regulator could prevent you from squandering your money on a scam.

  • Is the person licensed and law-abiding? Call your state securities regulator and ask whether the person or firm is licensed to do business in your state and whether they have a record of complaints or fraud. To contact your state regulator call the North American Securities Administrator's Association (NASAA) at (202) 737-0900 or online at (web address).

  • Use caution when surfing wireless hotspots. Wireless hotspots are becoming common in airports, coffee shops and hotels. They offer a convenient (and often free) means to access the Internet. But hotspots and home-based Wi-Fi (wireless fidelity) networks can also pose risks.

  • Does the investment sound too good to be true? Make sure you fully understand the investment before you part with your hard-earned money. Always ask for - and carefully read - the company's prospectus and latest financial statements. Some clues that the investment sounds too good to be true:
    • A promise or guarantee of a specific rate of return. Investments by their very nature cannot promise or guarantee a return.
    • Advertised returns that are much higher than the general market. If an investment is being promoted as offering a 50% return in just three months, and this far exceeds what can be found elsewhere in the market, then this offer DEFINITELY sounds too good to be true! And it is!!
    • No risks involved. Every investment involves some degree of risk, and the degree of risk ranges from minimal to quite a lot. It is a fact. There is no investment opportunity offered that carries no risk at all. Understanding the relationship between risk and reward will help you avoid the pitfalls that are often promoted by con artists - and that is, the higher the reward to be gained from an investment, the greater the risk.