Developing the right mindset and processes to invest wisely and avoid fraud

James MacTavish

This article was originally published on checkfirst.ca

For any investor, novice or experienced alike, there can be pitfalls and challenges that potentially lead you to making unsuitable investments.  These pitfalls include cognitive biases, poor planning, and even missing the red flags of fraud. To help you recognize these pitfalls and define sound practices and behaviours that will help you improve your approach to investing, consider the following core principles.

Behaviour and mindset – Investing is not just the act of buying or selling investments. It is also about your mindset and processes. Over confidence, anxiety, and the fear of missing out can lead you to jump into inappropriate investments that are tied to hot trends and new innovations, or fall prey to fraudulent or misguided get rich quick schemes. The best way to avoid these challenges is to refine your processes.  Start by developing a financial plan and goals before you actually make that first investment. Your plan doesn’t have to be complicated, but by having your goals laid out can help you maintain your focus and avoid the noise and distractions in the market. For investors that recognize that their emotional discipline may not be strong enough to avoid these traps, the assistance of registered investment professionals may be needed. Utilizing the services of a registered financial planner or financial advisor may provide the dedicated service, and peace of mind, to help you choose the suitable investments that will help you achieve your financial goals.

Investment literacy and fraud knowledge – To invest successfully, start by developing your understanding of securities, in addition to investing principles and strategies. As you build your knowledge and your portfolio, you may want to explore more advanced investments like exempt market securities, options trading or even crypto assets. Recognize the limitations of your investment knowledge and consider taking time to talk to registered investment professionals and assess what new investment opportunities might fit best within your financial plan and risk tolerance (your ability and willingness to take risk with your money).

While knowing the inherent risks to investments is essential, understanding and recognizing the risks of fraud and scams is just as important. A recent study conducted by the Alberta Securities Commission (ASC) found that nearly half of Albertans have been approached by what they felt was possibly a fraudulent investment opportunity. Some of the key signs of fraud include promises of high return rates with little to no risk, exclusive or time-sensitive investment offers, offshore and tax-free investments, and insider tips. Understanding these signs and the situations and scenarios in which they can be presented can help you better safeguard your money and assets. To learn more about investment scams and how to recognize, avoid and report them, investors should visit CheckFirst.ca, brought to you by the Alberta Securities Commission.

Proactive  measures – By taking a few proactive steps you can help reduce the chances of your portfolio underperforming, and prevent you from taking on unsuitable investments and falling for fraud. Some suggested steps include thoroughly researching the legitimacy and suitability of investments before investing and regularly monitoring the performance of your investments and your portfolio as a whole. By taking the time to do this, you can better validate new investment opportunities and ensure your existing investments are tracking towards your goals.

In addition to these proactive measures, one of the most important steps you can take before investing with any financial advisor, firm or brokerage, is to conduct the necessary due diligence. Generally speaking, financial advisors, firms, and brokerages must be registered to offer you securities. By checking registration at CheckFirst.ca, you can ensure you are working with registered professionals and businesses that are compliant with securities law before you hand over your money.

Investing wisely may seem complicated, but following these core principles as part of your investing process will lead to a more successful and enjoyable journey and help you avoid common mistakes and fraud.


Alberta Securities Commission

The ASC is the regulatory agency responsible for administering the province's securities laws. It is entrusted with fostering a fair and efficient capital market in Alberta and with protecting investors. As a member of the Canadian Securities Administrators, the ASC works to improve, coordinate and harmonize the regulation of Canada's capital markets.

James MacTavish
Senior Advisor, Investor Education at the Alberta Securities Commission

James is currently a senior advisor, Investor Education at the Alberta Securities Commission. He leads the investor and consumer education campaign designed to help Albertans strengthen their investment literacy and protect themselves from investment fraud. James holds a Bachelor of Communications from the University of Calgary.

Disclaimer
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or opinions of Olympia Trust Company, Olympia Financial Group Inc., or any of its affiliates. The author’s views and opinions are based upon information they consider reliable, but neither Olympia Trust Company, Olympia Financial Group Inc. nor any of its affiliates, warrant its completeness or accuracy, and it should not be relied upon as such.