I recently attended a
webinar about investment fraud sponsored by OneOp. The speakers were from the
U.S. Securities and Exchange Commission (SEC). Below are six key take-aways:
FinTech Platforms-Financial
technology (FinTech) is increasingly being used for banking, lending, bill
payments, and wealth management. Investment advisory platforms typically
include an initial assessment through an online questionnaire (e.g., goals,
age), automated portfolio recommendations, and automated management.
Fees/commissions vary widely among providers. SEC-registered platforms are
subject to examinations and enforcement and have SIPC insurance against
insolvency.
Online Gambling-
Research suggests money spent on online sports betting overwhelmingly comes from
money that was previously spent on more stable, long-term investments like
retirement savings accounts. One study found that bettors spent, on average,
$1,100 per year on online bets. For every dollar spent on betting, bettors put
$2 fewer into investments. The study author (Scott Baker, Northwestern
University) concluded “Bettors are looking for the big win at the expense of
savings.”
Modern Twists on Old
Scams- Fraudulent individuals or public companies may use
the promise of artificial intelligence (AI) and emerging technologies to lure
investors. Bad actors love to use the latest trends or events to promote
outright frauds. Watch out for heavily promoted microcap stocks that may be the
focal point of a “pump and dump” scam. Also beware of messages claiming to come
from companies and government agencies. AI makes it easy to clone voices and
make fake videos.
Advantages of
Diversification- Diversification can lower the risk of
investing. If a single company or sector loses value, exposure to other
investments may limit their losses. Broadly diversified, low fee index mutual
funds or exchange-traded funds and target date funds are easy ways to achieve
diversification. For example, the Standard & Poor’s 500 index tracks the
500 largest U.S. publicly traded companies and total stock market funds offer
even broader diversification.
Market Timing-
Market timing (i.e., moving money in and out of the stock market to try to
track high and low prices) is difficult and expensive. A Library of Congress
study found that active traders are more likely to underperform the market. In
addition, frequent traders typically pay higher taxes than investors with long
term “buy and hold” investments. The best and worst days in the stock market
tend to happen close together.
Account Protection-
The SEC offered the following advice to protect online accounts from fraud:
pick strong passwords and keep them secure, use multi-factor authentication
(e.g., texted or e-mailed codes) or biometric safeguards (e.g., facial
characteristics, fingerprints, retinas, and voices), and turn on account
alerts. Also, avoid using public wifi for online access, be careful clicking on
links, and beware of relationship scams and affinity fraud scams that target
specific groups.
For additional
information about investing and investment fraud, visit www.investor.gov.
This post provides
general personal finance or consumer decision-making information and does not
address all the variables that apply to an individual’s unique situation. It does
not endorse specific products or services and should not be construed as legal
or financial advice. If professional assistance is required, the services of a
competent professional should be sought.
