Investing Do's and Don'ts

Often, a bad combination of an inexperienced investor and an unscrupulous broker can result in both heartache and financial loss. In fact, every year, Hoosier investors are defrauded and cheated out of hundreds of millions of dollars.

Consumers can protect themselves by becoming investment-savvy and making educated decisions based on the following tips:

DO make sure a security is sold by a licensed individual.
You can check to make sure someone is licensed to sell investments by calling the Secretary of State's office at 1-800-223-8791. This free service can protect you from making a risky investment with a broker without a valid securities license. Remember—no license, no sale.

DON'T buy into promises of "limited or no risk" returns.
Unregistered investment products are almost always a losing bet. Con artists bypass state registration requirements to pitch viatical settlements, pay telephone and ATM leasing contracts and other fraudulent investments. Check with the Secretary of State's office to make sure an investment product is registered.

DO educate yourself about online investment fraud.
Stock promoters are using online boiler rooms, instant messaging and fake Web sites to lure investors into "pump-and-dump" stock schemes. Investigate opportunities you discover online as rigorously as any other investment—maybe more so.

DON'T be seduced by high-yield investment schemes.
If it seems too good to be true, it probably is. Scammers often lure investors with promises of triple-digit returns through "risk-free guaranteed high-yield instruments" or some equally deceptive enticement.

DO be aware of fraud related to current events, like oil and gas scams.
With oil prices hitting new highs and continued instability in the Middle East, many con artists are renewing schemes promising quick profits in oil and gas ventures. These frauds exploit fear and news headlines to capitalize on uninformed investors who are persuaded that there are easy gains to be made because of the rising price of fuel.

DON'T do business with a broker or investment firm you don't know.
Before investing your money, make sure the promoter is registered to sell securities in Indiana. Avoid doing business with promoters who have a history of state or federal disciplinary actions, and always be aware of how the promoter earns money from your investments (i.e. through commission or flat fee).

DO know your investments.
Before investing, educate yourself concerning the costs and degree of risk associated with any opportunity. Learn about the performance history of an investment; be wary of a promoter that will not provide that history in writing.

DON'T invest without a strategy.
Before meeting with a promoter, map out your short-term and long-term investment goals. This allows you to determine whether a particular investment meets your needs. Don't be afraid to ask the promoter questions.

DO ask yourself a few questions before making an investment.

  • Are the seller and the investment properly registered?
  • Has the seller given you written information fully explaining the investment?
  • Are claims made for the investment realistic?
  • Does the investment meet your personal investment goals?

If the answer to one or more of these questions is "no," you are at risk of being defrauded.

DON'T invest before checking out opportunities, investment products, advisers and brokers.
Do your homework. All corporations should be registered with the Secretary of State's office. Some investment opportunities and the sellers of those investments should be registered as well. Some investments are exempt from state registration requirements. Information can be verified free of charge in as little as 24 hours by calling 1-800-223-8791.

Further background checking can be done at through the National Association of Securities Dealers' BrokerCheck, available at

DO act quickly if you discover a problem.
It's your responsibility as an investor to check your account statements for any mistakes or unauthorized transactions. Take detailed notes when meeting with a promoter, so you know exactly what was discussed. If your account statement contradicts those notes, act swiftly. Notify the promoter's firm first, and if that doesn't resolve the problem, contact the Secretary of State's office at 1-800-223-8791.

Understanding Your Brokerage Account Statements
When Your Broker Calls, Take Notes