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This article is from the What Every Investor Should Know.

Protect Yourself

You should be as careful about buying securities as you would be about any other costly purchase. The vast majority of securities professionals are honest, but be aware that misrepresentation and fraud do take place. Observe the following basic safeguards when "shopping" for investments:

1. Don't buy securities offered in unsolicited telephone calls or through "cold calls"--ask for information in writing before you decide.
2. Beware of salespeople who try to pressure you into acting immediately.
3. Don't buy on tips or rumors. Not only is it safer to get the facts first, but also it is illegal to buy or sell securities based on "inside information" which is not generally available to other investors.
4. Get advice if you don't understand something in a prospectus or a piece of sales literature.
5. Be skeptical of guarantees or promises of quick profits.
6. Check on the credentials of anyone who tries to sell you securities.
7. Remember that prior success is no guarantee of future success in an investment arrangement.
8. Be especially careful with certain tax-sheltered investments, partnerships, and other "illiquid" investments. Ask about the liquidity and understand that there may not be a ready market when you want to sell.
9. Be sure you understand the risks involved in trading securities, especially options and those purchased on margin.
10. Don't speculate. Speculation can be a useful investment tool for those who can understand and manage the risks involved and those who can afford to lose money. For the average investor, more conservative investment strategies are generally appropriate.

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