How to check an investment
A big promise isn’t the whole picture.
You’ve probably seen posts about the “next big thing”. Before getting excited, ask a couple of boring but useful questions.
Enable JavaScript to explore the interactive version, or open the full text below.
Prefer reading? See the full lesson
A big promise isn’t the whole picture.
You’ve probably seen posts about the “next big thing”. Before getting excited, ask a couple of boring but useful questions.
What am I actually buying?: What exactly would you own? A company, a fund, a loan or something else?
What could go wrong?: Could the price fall? Is it hard to sell? Does it borrow money to increase exposure?
What am I paying?: Look for the full cost, not just the one fee shown in the ad.
Main point: Before trusting an investment claim, find out what you’d own, what could go wrong and what you’d pay.
The boring document is often the useful one.
Reading a product document isn’t exactly a cracking Friday night, but it can tell you far more than a flashy advertisement.
Find the original source.: Check the provider’s current fact sheet and disclosure documents, including a PDS (Product Disclosure Statement) when relevant. Look for costs, investment goals and risks. You can also check financial services authorisations on official ASIC registers.
Turn a percentage fee into dollars.
Imagine you’ve invested A$10,000 and the balance stays the same for a year. Move the annual fee rate to see the rough dollar cost, before other charges.
Actual fees may change as the investment value changes. This example leaves out tax, performance and some other costs.
Someone online says they made a fortune.
Good for them if it’s true. It still doesn’t tell you whether the same investment makes sense for you.
Check the timeframe: A great six months tells you very little about what happens next.
Check an official source: Check the provider, the product and its current terms yourself.
Ask what’s missing: What about the losses, fees or restrictions they didn’t mention?
Main point: Big returns in someone else’s screenshot don’t tell you what might happen next. Check current official information.
Understand it before you buy it.
You don’t have to act because someone on Reddit sounds certain. Take the time to understand the investment and its downside.
Understand it before deciding: You’re the one taking the risk, so make sure the investment makes sense to you.
Take your time: There’s no prize for making a rushed investing decision.
Main point: Take your time. Understand the investment and the risks before deciding to buy.
What to remember
Before investing, make sure you understand what you’d own, what could go wrong and what it costs. Don’t rely on a good story or someone else’s returns.
Read the provider’s current documents and check important claims through official sources. There’s no need to rush into buying.
General education only. Examples are simplified. Investments can lose value.