Know the Risks
Researching investments is part of an investor’s due diligence. GUARDD was developed to provide you with access to information so that you may make an informed investment decision. You should review the entire report to make sure you understand the company’s business, how they may generate revenue, and any risks company management has identified in their ongoing operations. These disclosures provide investors with information to assess whether a particular security is a good investment for them given each investors risk tolerance. Keep in mind, many companies that provide business financial disclosure through GUARDD may not be required to make that same information available to the SEC.
Making any kind of investment involves risk. You should inform yourself about the company that you are seeking to invest in and the associated risks. Here is some information by the Securities and Exchange Commission that you should review.
In finance, risk refers to the degree of uncertainty about the rate of return on an asset and the potential harm that could arise when financial returns are not what the investor expected. In general, as investment risks rise, investors seek higher returns to compensate them for taking on such risks.
All investments involve some degree of risk. Every saving and investment product has different risks and returns. Differences include how readily investors can get their money when they need it, how fast their money will grow, and how safe their money will be. There are a number of risks investors face. They include:
Business Risk – Returns from require that that the company stays in business. If a company goes bankrupt and its assets are liquidated, common stockholders are the last in line to share in the proceeds.
Volatility Risk – A stock’s price can be affected by factors inside the company, such as a faulty product, or by events the company has no control over, such as political or market events.
Inflation Risk – Inflation is a general upward movement of prices. Inflation reduces purchasing power, which is a risk for investors receiving a fixed rate of interest. The principal concern for individuals investing in cash equivalents is that inflation will erode returns.
A stock’s liquidity generally refers to how rapidly shares of a stock can be bought or sold without substantially impacting the stock price. Stocks with low liquidity may be difficult to sell and may cause you to take a bigger loss if you cannot sell the shares when you want to.
Liquidity risk is the risk that investors won’t find a market for their securities, which may prevent them from buying or selling when they want. This is sometimes the case with complicated investment products and products that charge a penalty for early withdrawal or liquidation such as a certificate of deposit (CD).
A blockchain is an electronic distributed ledger or list of entries – much like a stock ledger – that is maintained by various participants in a network of computers. Blockchains use cryptography to process and verify transactions on the ledger, providing comfort to users and potential users of the blockchain that entries are secure. Some examples of blockchain are the Bitcoin and Ethereum blockchains, which are used to create and track transactions in bitcoin and ether, respectively.
A virtual currency is a digital representation of value that can be digitally traded and functions as a medium of exchange, unit of account, or store of value. Virtual tokens or coins may represent other rights as well. Accordingly, in certain cases, the tokens or coins will be securities and may not be lawfully sold without registration with the SEC or pursuant to an exemption from registration.
A virtual currency exchange is a person or entity that exchanges virtual currency for fiat currency, funds, or other forms of virtual currency. Virtual currency exchanges typically charge fees for these services. Secondary market trading of virtual tokens or coins may also occur on an exchange. These exchanges may not be registered securities exchanges or alternative trading systems regulated under the federal securities laws. Accordingly, in purchasing and selling virtual coins and tokens, you may not have the same protections that would apply in the case of stocks listed on an exchange.
Virtual tokens or coins may be issued by a virtual organization or other capital raising entity. A virtual organization is an organization embodied in computer code and executed on a distributed ledger or blockchain. The code, often called a “smart contract,” serves to automate certain functions of the organization, which may include the issuance of certain virtual coins or tokens. The DAO, which was a decentralized autonomous organization, is an example of a virtual organization.
Investing in an ICO may limit your recovery in the event of fraud or theft. While you may have rights under the federal securities laws, your ability to recover may be significantly limited.
Be careful if you spot any of these potential warning signs of investment fraud.
· “Guaranteed” high investment returns. There is no such thing as guaranteed high investment returns. Be wary of anyone who promises that you will receive a high rate of return on your investment, with little or no risk.
· Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme. Exercise extreme caution if you receive an unsolicited communication—meaning you didn’t ask for it and don’t know the sender—about an investment opportunity.
· Sounds too good to be true. If the investment sounds too good to be true, it probably is. Remember that investments providing higher returns typically involve more risk.
· Pressure to buy RIGHT NOW. Fraudsters may try to create a false sense of urgency to get in on the investment. Take your time researching an investment opportunity before handing over your money.
· Unlicensed sellers. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status on Investor.gov.
· No net worth or income requirements. The federal securities laws require securities offerings to be registered with the SEC unless an exemption from registration applies. Many registration exemptions require that investors are accredited investors; some others have investment limits. Be highly suspicious of private (i.e., unregistered) investment opportunities that do not ask about your net worth or income or whether investment limits apply.
The practice of spreading money among different investments to reduce risk is known as diversification. Diversification is a strategy that can be neatly summed up as “Don’t put all your eggs in one basket.”
One way to diversify is to allocate your investments among different kinds of assets. Historically, stocks, bonds, and cash have not moved up and down at the same time. Factors that may cause one asset class to perform poorly may improve returns for another asset class. People invest in various asset classes in the hope that if one is losing money, the others make up for those losses.
You’ll also be better diversified if you spread your investments within each asset class. That means holding a number of different stocks or bonds, and investing in different industry sectors, such as consumer goods, health care, and technology. That way, if one sector is doing poorly, you may offset it with other holdings in sectors that are doing well.
Secondary Trading is when investors, traders and speculators buy existing securities, both equity and debt, on the secondary market. NASDAQ and NYSE (New York Stock Exchange) are examples of secondary markets.
Primary Trading is when the shares are created, listed and sold to investors for the first time – usually through an IPO (aka an Initial Public Offering). In this instance, investors buy shares directly from the issuing company through the IPO.
On the other hand, Secondary Trading is when securities that are already listed on a stock exchange are bought and sold by traders, investors and speculators. There is no involvement by the company that issued the initial shares.
In other words, shares are initially sold in the primary market (via Primary Trading) and down the track, these securities are sold to other investors via Secondary Trading.
The secondary market enables the buying and selling of existing securities. Typically, a seller will have an idea of how much they want to sell their shares for, called the Ask price. Buyers will look for shares that interest them within their price range. When both buyer and seller have agreed on a share price, a trade will take place.
As with any other market, the price of shares is impacted by supply and demand. If shares are in demand and there is a limited supply, their price will increase. If demand is low or non-existent (which can happen when a company posts insufficient earnings) the price will drop.
It’s important to realize that shares aren’t the only thing that can be traded on the secondary market. Some of the products available via Secondary Trading are:
· equity shares
· mutual funds
· preference shares
· treasury bills
Other resources to check out are:
 The wording below these links are paraphrased from the investor.gov website