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 funds, and structured products, all of which have seen a substantial increase in sales over the past few years.
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," warned FINRA.
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 here.