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

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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.

Five tips to avoid the dangers of affinity fraud

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Many don’t realize this, but one in four Albertans are approached with fraudulent investment opportunities through friends and family – people we trust. According to the Alberta Securities Commission (ASC),  this type of scam is called affinity fraud and almost always involves either a fake investment or one where the scammer lies about the critical details, such as the risk of losing money or where the money is going. With affinity fraud, scam artists often target organized groups such as community clubs, religious organizations, immigrant communities, seniors’ homes and professional associations.

While members of these groups are sometimes fully aware of their intent to deceive, other times they are unknowingly involved. And often, you may not realize that what you are putting your money into is considered a ‘security’. Fraudulent investments take on many forms –  from shares to promissory notes, units, trades, or some other creative monetary term. No matter what it is called, securities laws apply whenever you are giving someone money with the expectation of a return or payment. It is critical, therefore, that you know how to protect yourself from investment fraud no matter the source.

This type of fraud is identifiable and avoidable. By following this checklist, you could help to save yourself or a loved one time, money and heartache:

 

Never rely solely on referrals from friends and family members.

If they have failed to do their research and invested in a scam, they may unknowingly lead you down the same path.

If it sounds too good to be true, it is.

Don’t be drawn in by promises of spectacular returns and low risk; these are classic warning signs of fraud.

Don’t be pressured into making a decision.

Take your time to understand the business and the risks involved. Scam artists will pressure you into making a quick decision. They are doing so to exploit your fear of missing out on a “valuable” and “time-sensitive opportunity” — and to limit the amount of research you conduct.

Be wary of investments offering little information.

If you are being offered an investment and the promoter “doesn’t have time” to provide details or you are told to keep the opportunity confidential, this could be a warning sign.

Check the salesperson’s background.

Anyone offering securities in Alberta generally must be registered with the ASC. The ASC can also tell you if the salesperson has ever been subject to enforcement action.

 

Many people who fall victim to affinity fraud fail to report it because they feel ashamed, embarrassed or want to protect their friend or loved one. This enables other people to fall victim to the same scam and makes prevention difficult. If you suspect you or someone you know has been approached with a potentially fraudulent investment scheme, you can find help and more information about the red flags of investment fraud at checkfirst.ca or contact the ASC at 1-877-355-4488.

 

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.

 

 

Pump-and-dump dangers: Investing in current events & crises

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Now more than ever, Albertans are feeling vulnerable. With growing economic uncertainty stemming from a highly volatile stock market and the ongoing global crisis impacting jobs, retirements savings and daily life, Albertans of all ages are looking for a solution to their financial strain. Unfortunately, fraudsters utilize this fear along with emerging industries, global events and major crises to profit from victims. To further their agenda, they may play upon those most vulnerable, including Albertans suffering from isolation, loneliness or fear.

One particular scam that fraudsters use to capitalize on these types of events or crises is a pump-and-dump scheme. This investment scheme works by the fraudster taking advantage of a global event or breaking news to lure in investors with overwhelmingly positive – and usually false – claims about a company or product and the guarantees of high returns. This company is usually a small publicly traded “shell” company with limited or untrue publicly available information that the fraudster already has many shares in. As more investors purchase stock in the company, the more inflated, or “pumped up,” the price of the stock becomes. Before the hype around the company fades, the fraudster will sell or “dump” all their stock for a substantial payout and, by doing so, rapidly deflate the price of the stock resulting in the remaining investors losing all their money.

While it may seem hard to recognize a pump-and-dump scheme, the following are key red flags to watch for:

 

The facts surrounding the investment

Fraudsters will often pump up the price of company stocks with incorrect or false information through hyped-up news releases, social media or paid promotional campaigns. Remember to do your research and don’t rely solely on the information provided by the company as it could be untrue. Always read the fine print for any email promotion or online ad, as it will state that it is a paid promotion and that the third party promoter is not responsible if it is a scam. And during any global health crisis be cautious of claims that focus on vaccines and health-related products and services that are not coming from reputable health organizations.

 

Exclusive opportunities in-person

Has a new friend or acquaintance come to you with the promise of an investment opportunity too good to pass up? Fraudsters target everyone including those in social groups, community associations and seniors groups. While it may seem like your new acquaintance is looking to help you out, that shouldn’t stop you from researching the investment before giving your money away. You may also want to call the Alberta Securities Commission and explain the investment to them. While they cannot tell you what to invest in, they can identify red flags related to your investment.

 

The history of the company

There are legitimate companies out there, but you need to look past what they are currently promoting and understand their history to make sure the opportunity is real. For instance, you may find a small pharmaceutical company that is creating buzz around its up and coming vaccine, but only six months ago was in the cannabis industry. Or the company has no visible history, which is a key red flag that it may be a shell company used for pump-and-dump schemes.

 

It’s easy to get carried away with the newest opportunity, especially when concerned about your financial future. But remember: when investing in any company, always research the investment and keep in mind that fraudsters often exploit the latest crisis and people’s vulnerability to promote pump-and-dump schemes. During this time of uncertainty, stay safe – and that includes watching out for your financial health.