No one wants to lose money. But it's even worse when a bad investment leaves you feeling like a fool. There are some great tools to help you assess potential investments, evaluate the risks, and make better decisions. There are no guarantees you'll get spectacular returns if you use these tools, but they might make you might feel a little smarter, or at least give you some peace of mind.
Morningstar (Nasdaq: MORN), a leading provider of independent investment research, is trying to replicate the crystal ball. Well, maybe that's a little extreme. But the Chicago-based firm, well known for rating mutual funds on past performance, now intends to look to the future. Don Phillips, Morningstar's president of fund research, announced at the company's investment conference last week that it's expanding its ratings to include a system that's less descriptive than predictive. The company created the popular star ratings, which objectively measure funds against their peers based on risk-adjusted returns. But starting this fall, it will also start identifying the funds it expects will do best in the future.
The new analyst ratings will assess five factors: quality of the fund manager; quality of the investment process; quality of the fund's parent company; evaluation of long-term returns; and evaluation of the expenses the fund charges. Investors who research a fund on Morningstar's Website will see the fund's analyst rating above its star rating. Look for them starting this October, when Morningstar plans to assign analyst ratings to as many as 200 funds. During the next year, it hopes to rate more than 1,500 funds -- a group that collectively holds more than 80% of fund industry assets.
Answer four quick questions, and get an objective opinion whether a prospective investment offers opportunity or fraud. How easy is that? That's exactly what the Scam Meter promises to do. Brought to you by the Financial Industry Regulatory Authority (FINRA), the online tool "can help you assess whether an opportunity is too good to be true." If you provide questionable responses, you'll generate red flag warnings, along with advice on what to do to protect yourself.
FINRA also offers several other cool tools, including a Risk Meter designed to determine a potential investor's susceptibility to investment fraud. All you do is answer 12 simple questions, ranging from "Have you ever attended an investment seminar with a free meal?" to "Have you bought or would you consider buying: Stocks that sell for under $5 a share, or private investments in startup companies and/or new technologies?" The Risk Meter compares your responses to the findings of two research studies, a 2007 Senior Fraud Risk Survey by the FINRA Investor Education Foundation and a 2006 Investor Fraud Study by the Consumer Fraud Research Group, which assessed how victims of investment fraud differ from non-victims.
FINRA's Fund Analyzer provides information and analysis on more than 18,000 mutual funds, Exchange Traded Funds (ETFs), and Exchange Traded Notes (ETNs). It estimates the value of the funds, as well as the impact of fees and expenses on your investment, and even gives you the ability to look up applicable fees and available discounts for funds.
FINRA's BrokerCheck provides information about stock brokers, including qualifications, exams passed, employment history, disciplinary actions and investigations, customer complaints, investment-related civil suits, criminal felony charges, and convictions, and whether the broker is registered or suspended with any regulator.
And the US Securities and Exchange Commission (SEC) offers information about investment advisers who are not stockbrokers. The Investment Adviser Search provides information about current and former investment advisers and investment adviser firms registered with the SEC and/or state securities regulators.
How do you contact your state securities regulators, or regulators in Canada or Mexico, for that matter? It's easy. Here are the links.