FINRA recently issued an investor alert aimed at investors who were "chasing
return" in search of higher and more consistent returns than those
currently offered by fixed-income investments and stocks.
"Chasing return," according to FINRA, is when an investor puts
his or her assets into "riskier and sometimes esoteric products that
promise higher yields and returns than they can obtain in more traditional
investments." Examples include: high-yield bonds, floating-rate loan
structured products, all of which have seen a substantial increase in sales over the past
FINRA's concern is whether investors understand the high level of risk
associated with higher-yield products.
"The relationship between risk and return in the investment world
is quite robust. The promise of higher return is almost always associated
with greater risk and an increased possibility of investment losses,"
In the alert, FINRA recommended that investors ask themselves several important
questions before deciding the grass is greener in higher-yield products,
and changing their investments. Importantly, investors should truly understand
how the investment operates, the fees involved, and the investment's
level of risk. Finally, investors should consider whether the investment
might be an investment scam.
"Legitimate investments that promise returns of 30, 50 or even 100
percent per year without any risk to your principal simply do not exist.
Always independently verify who you are dealing with and whether the seller
of the investment is licensed to do business with you," said FIRNA.
For more information, read the alert