Investor Risks in Chasing Returns

SUSIE GHARIB: With the Fed pledging to keep interest rates low for a few more years, investors are chasing yield and some are taking on new risks. Here`s Gerri Walsh, president of the FINRA Investor Education Foundation.

GERRI WALSH, PRES., FINRA INVESTOR EDUCATION FOUND.: Investors currently find themselves in a difficult investing environment. Yields on fixed income investments are at historically low levels and stock returns have been quite volatile. As we begin a new year, what is an investor to do? Some investors are chasing return, meaning they are putting their assets into riskier and sometimes esoteric products that promise higher yields and returns than they can obtain in more traditional investments. These products range from easily understood investments like high-yield bonds to complex vehicles like leveraged and inverse ETFs, reverse convertibles and other structured products.

The beginning of a new year is a good time to remind investors that when they invest in products that promise higher returns, they are nearly always taking on more risk. Investors should never make an investing decision solely by looking at an investment`s return, whether past or projected. Higher returns come with higher risk and if investors do not fully understand how an investment works and what risks and fees they are taking on, they probably shouldn`t invest. I am Gerri Walsh.

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