Risk is always present when you invest, no matter your investor profile. This doesn’t mean, however, that you should take a chance on just any investment.
To minimize your risk, one important thing to do is to transact only with authorized entities. This will help keep your hard-earned money safe from scammers.
You might be tempted by a promise of high earnings and very little to no chance of losing money. Most of the time, you get these from an unlicensed agent or company.
Before giving out your money, find out what could happen and learn about protections you might miss out on.
What could happen if you invest through an unlicensed company?
Unlicensed investment companies are not regulated by relevant authorities. They’d likely ignore laws meant to protect investors.
They might promise attractive profits without being completely honest about what they’ll do with your money. At worst, you might fall victim to a scam that will run off with your investments.
Keep in mind that there is no legitimate investment out there that will give you low risk and high returns at the same time. This is the typical pitch of an investment scammer.
When investing, remember that the lower the risk, the lower your potential returns. The higher the risk, the higher the potential returns.
How do licensed investment companies protect investors?
An authorized agent or investment company will explain all possible risks to you before you start investing. If you agree to take on these risks, it means you understand and are OK with what could happen to your money.
At that point, you’ll also accept that there’s no guarantee you’ll earn from your investments and there’s a chance you’ll face a loss. However, this doesn’t mean that authorized investment firms can do whatever they want with your money.
The Securities Regulation Code protects investors in many ways through the authority of the Securities and Exchange Commission (SEC).
It ensures that the investing public will receive timely and truthful disclosure about securities. The SEC also works to prevent fraudulent activities like manipulation and insider trading.
The Philippine Stock Exchange (PSE) puts additional safeguards in place to keep stock market investors safe.
For example, anyone who opens an account with a PSE-accredited broker is automatically covered by the Securities Investor Protection Fund (SIPF).
This fund – like insurance for bank deposits – protects investors from losses due to fraud, failure of business, or insolvency of licensed brokers. However, it doesn’t protect from losses caused by ordinary market fluctuations.
How do you know if an investment company is legitimate?
Companies and brokers must register with the SEC and get the right license before selling investments. For easy reference, the SEC keeps a list of registered investment companies on its website.
If you’re investing through a bank, make sure it’s regulated by the Bangko Sentral ng Pilipinas (BSP). When investing in stocks, only engage with brokers and brokerage firms accredited by the PSE.
Get in touch with relevant authorities if you want to check whether a person or company is licensed to offer investments. It’s also important to know the signs of an investment scam to keep your money safe.
