Investor Education Month: informed investors can avoid losing their money
As part of Investor Education Month, the Financial and Consumer Services Commission encourages investors to take steps to inform and protect themselves regarding a variety of new ways to invest online, particularly regarding initial coin offerings (ICOs) and cryptocurrencies.
“ICOs, cryptocurrencies and other digital assets are emerging investment products. However, they are extremely risky and can be fertile ground for fraud,” said Erin King, the commission’s senior education and website officer. “We aim to provide investors with information about how to recognize a legitimate opportunity, and with the tools to make an informed decision about purchasing.”
The rise in cryptocurrencies, like Bitcoin, has enabled the creation of ICOs. While there is a lot of media coverage about these new types of digital assets and investment products, many people do not fully understand the risks or how they work. Being informed helps protect investors from falling prey to either outright fraud, or to making investments in products that are riskier than their individual comfort level allows.
ICOs are becoming popular among business start-ups to get investors to buy into an idea in exchange for digital tokens or coins. For those looking to invest, it is important to understand that ICOs may not be proven ventures with a product or service, and may be nothing more than ideas or concepts at the time that investors are sought.
ICOs have a high risk of failure. If the business does not successfully complete the project, the coins or tokens it issued may have no value. Investors may be promised high returns, but they should not participate unless they are prepared to lose their entire investment.
Additionally, fraudsters are pretending to be involved in ICOs, cryptocurrencies and blockchain technology, as a means of scamming money. Unlike an initial public offering (IPO), most ICOs are made without following formal disclosure requirements. As a result, it is often difficult to find out who is behind the ICO and how the money raised will be spent.
“Being an informed investor means doing research and understanding how a particular investment works, what the risks are, and understanding there is no such thing as a risk-free investment,” said King. “In some cases, people may feel pressured into making an investment to get rich quick. The bottom line is, if you do not understand how an investment works, do not invest.”
During the month, the commission will be sharing information about investing online and outlining some of the risks:
- ICOs may try to entice investors through free token give-aways or token rewards for promoting the investment through social media.
- Some digital assets offerings are pyramid schemes. If you must pay to join, and making money is based upon how many people you can recruit, it is a pyramid scheme and is illegal.
To help raise awareness the commission is launching an investor challenge with a chance to win prizes during Investor Education Month. Throughout the month, its online trivia game Fortune will have questions related to these types of investments. New Brunswickers are encouraged to challenge their friends, while they learn more about being an informed investor and the risks of ICOs. The top three players at the end of October will receive prizes.
To learn more about being an informed investor and cryptocurrencies click on the following links:
Sara Wilson, Senior Communications Officer, 506 643-7045 or 1 866 933-2222. firstname.lastname@example.org