ManagingInvestmentRisk(M)-FINRAInvestorEducation.docVIP

Choosing Investments 1. Introduction Like every investor, you want to choose investments that provide the growth and income you need to meet your financial goals. Think of the various types of investments as tools that can help you achieve these goals. Each broad investment type—from bank products to stocks and bonds—has its own general set of features, risk factors and ways in which they can be used by investors. It’s important to understand what your investment choices are and how different types of investments put your money to work. It’s equally important to understand yourself as an investor. That’s because a portfolio that’s right for someone else may not be best for you. Some factors that make a difference are: your goals, or what you want to accomplish by investing; the time frames for your various goals; and your attitude toward risk—or what’s called your risk tolerance. Once you’ve devised a strategy for choosing investments appropriate to each of your goals, you’ve taken a major step toward meeting them. 2. General Rules of Investment Selection No single approach to choosing investments will work for everyone or will be right for every situation. But here are a few tried-and-true rules for sound investment selection: Understand what you own. Focus on investments that are easy for you to evaluate and give you access to reliable information about them. Regulators require that certain information be disclosed to investors through documents such as offering circulars, mutual fund prospectuses and corporate filings for stock issued by public companies that trade on the major stock markets. In addition, you can find a wealth of real-time and historical market data for stocks, bonds, mutual funds and other securities on FINRA’s Market Data Center at www.FINRA.org. Assess liquidity. Make sure there is a market to trade your investments. Highly liquid investments are easy to buy and sell, either through a brokerage account or in some cases directly from