Do not be fooled by guarantees: all investment has some level of risk! The key is to understand the risk and plan for it appropriately. In the case of an individual stock, the latter chapters of my book, The Confident Investor, will help you evaluate the company’s health and the appropriate timing in the market.
You need to make sure that you use a respectable stock broker to handle your transactions. The first check is to make sure that they are a member of the Securities Investor Protection Corporation (SIPC).
SIPC is the first line of defense in the event a brokerage firm fails and owes customers cash and securities that are missing from customer accounts. From its creation by Congress in 1970, SIPC has advanced hundreds of millions of dollars in order to make possible the recovery of assets for investors. When a brokerage is closed due financial difficulties and customer assets are missing, SIPC works to return customers’ cash, stock and other securities.
If you are about to entrust some of your funds with an individual or securities firm, it is worth your while to do a background check. It may save you both money and future aggravation.
The Central Registration Depository system (CRD) is a source that you can turn to for broker research. The CRD is a computerized database that holds the license and registration information on hundreds of thousands of stockbrokers and thousands of brokerage firms throughout the United States.
In most cases, a stockbroker must be licensed or registered. Some states may require insurance agents who sell variable annuities or variable life policies to be licensed. Therefore, these individuals’ records will be maintained on the CRD. The CRD will tell you about your stockbroker’s past, including employment history, securities examination scores, registration status, and disciplinary issues.