Initial coin offerings can create risks for a buyer that may not fully understand and the value of a digital currency can swing up or down drastically. The digital currency could have features that were not made clear to purchasers and it could be hard to find a buyer to sell that currency to at a fair price. In addition to any investment opportunity, buyers should be on the lookout for the warnings signs of initial coin offerings, such as promises that the investment has no risk.
Companies offering ICOs through the internet can be based anywhere in the world and if a problem arises, it may be impossible to locate them or recover from them. It is also important to know that if an ICO is not a security and that investor protection under securities law does not apply. You should always discuss this risk with the seller of the ICO.
Know the Value of Your Investments
At least every 3 months, your investment fund should give you an account statement that tells you the total cost and market value of each investment, if any investment might be subject to a deferred sales charge and when your account is covered by an investor protection fund. A deferred sales charge is a fee a mutual fund may require you to pay them when you sell your holdings in their fund. Generally, the longer you hold onto the fund, the lower the sale charge will be.
Accounts covered by an investor protection fund are kept safe within certain limits, but only if your advisors firm becomes insolvent. The fund does not protect you if the market goes down and you lose money on your investments. Knowing this information can help you determine if your investments continue to be right for you. You can discuss this information with your advisor when determining your goals and how to achieve them. These expanded account statement requirements are part of securities law changes known as the client relationship model.
Know Your Investment Account Performance
Every year your investment fund should provide you with an investment performance report. The report lists all of your investments and tells you the market value of your account. It also tells you the market value of all deposits and withdrawals, the change in market value of your account and your rates of return over time. The rates of return in the report are your personal rates of return.
They're calculated based on the specifics of your account, such as the amount and timing of your deposits, withdrawals, purchases, sales and changes in the market value of your investments. Let's look at an example of when you buy can affect your rates of return.
Let's say that you and your neighbor Jacky both want to invest in Bitcoin, in September, Jacky buys 2 Bitcoins at $10,000 per BTC. Then in October, you also buy 2 Bitcoins, but at $11,000 per BTC.
At the end of the year, a Bitcoin is worth $20,000. We crunch the numbers, and even though you and Jacky both bought 2 Bitcoins, your personal rate of return is lower, because you bought later at a higher price.
When you buy is just one of the variables. Add all of your other investing components and you can see how much of a difference your rates of return is to you. Knowing your rates of return makes it easier for you to understand and discuss with your advisor where you are in achieving your goals.
By looking at the information in your annual report, you can ask questions to help make you a smarter investor. These annual report requirements are part of securities law changes, known as the client relationship model.
September 19, 2018
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