What do you want to invest in stocks, bonds, mutual funds? Do you want to open an IRA or buy an annuity? Does your employer offer a 401K? Remember, every investment involves some degree of risk. Most securities are not insured by the Federal government if they lose money or fail, even if you purchase them through a bank or credit union that offers Federally insured savings accounts.

Make sure you have answers to all of these questions before you invest:

• Define Your Goals.
  Ask yourself "Why am I investing money?" Maybe you want to save money to purchase a house or to save for retirement. Maybe you would like to have money to pay for your child's education, or just to have a financial cushion to handle unexpected expenses or a loss of income.
• How Quickly Can You Get Your Money Back?
  Stocks, bonds, and shares in mutual funds can usually be sold at any time, but there is no guarantee you will get back all the money you paid for them. Other investments, such as limited partnerships, often restrict your ability to cash out your holdings.
• What Can You Expect to Earn on Your Money?
  While bonds generally promise a fixed return, earnings on most other securities go up and down with market changes. Also, keep in mind that just because an investment has done well in the past, there is no guarantee it will do well in the future.
• What Type of Earnings Can You Expect?
  Will you get income in the form of interest, dividends or rent? Some investments, such as stocks and real estate, have the potential for earnings and growth in value. What is the potential for earnings over time?
• How Much Risk is Involved?
  With any investment, there is always the risk that you will not get your money back or the earnings promised. There is usually a trade-off between risk and reward: the higher the potential return, the greater the risk. The federal government insures bank savings accounts and backs up U.S. Treasury securities (including savings bonds). Other investment options are not protected.
• Are Your Investments Diversified?
  Consider diversifying your investment portfolio by placing your money in several investment vehicles. This can protect you from risk; while one of your investments may be performing poorly, another one of your investments can make up for those losses.
  • For example, when interest rates go up, bond prices tend to go down. One industry may struggle while another prospers. Putting your money in a variety of investment options can help to reduce your risk.
• Are There Any Tax Advantages to a Particular Investment?
  U.S. Savings Bonds are exempt from state and local taxes. Municipal bonds are exempt from federal income tax and, sometimes, state income tax as well. For special goals, such as paying for college and retirement, tax-deferred investments are available that let you postpone or even eliminate payment of income taxes.

Understand Investment Vehicles

• Not All Investment Products for Your Personal Financial Goals.
  Some provide steady income and are low risk, but yield small returns on investment; others may provide significant returns, but require a long-term investment commitment. There is a wide assortment of investment vehicles available. Some of the most popular include mutual funds, traditional IRAs, Roth IRAs, savings bonds or bond funds, stocks, and certificates of deposit.
• Your Investment Income Stream Matches Your Investment Timeline?
  Some investments pay out earnings on a regular (quarterly, monthly, or annual) basis, while others pay out earnings at the end of the investment period or may have age requirements for when you can withdraw your money without a penalty.
• You Should Also Consider the Tax Ramifications.
  If you are saving for retirement or for education, consider investments that offer incentives for saving for a particular purpose. Your contributions for some investments are tax deductible, but the earnings are not taxed (e.g. Roth IRA); your contributions to other investments may not be taxed, but the earnings are taxed (e.g. traditional IRA).

We suggest you review the table below to understand different types of investment products and the associated risk before you invest your money.

Checklist Before You Invest

• Do not invest in something just because someone you know did (i.e. mother, brother, father, sister, brother-in-law, friend, aunt, postman, clergy, business partner, etc.)
• Look for red flags (i.e. guaranteed returns, no risk, make the check-out to me, I'll get you the paperwork later, false credentials, trust me, "inside information")
• Do not be rushed into an investment
• Do not believe everything you hear (i.e. is the broker telling you something different than what is in writing?)
• Get it in writing (But don't believe everything you read)
• Ask questions about the investment (i.e. registered, risk, returns, fees, liquidity, suitable, professional designations)
• Ask questions about the broker (i.e. training/experience, how long have you been a broker/ any disciplinary history, are they registered)
• Know your risk tolerance - how much risk can you handle in your portfolio?

For more tips on understanding your investments, we invite you to visit our Smart Investment section.