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On money

Stocks are risky - but you could do worse

By HELEN HUNTLEY
Published May 15, 2005

Investing in the stock market looks terribly risky from some people's perspective. Although there are smart ways to manage the risk - from doing your research to diversifying your investments - some people would rather avoid it altogether.

Unfortunately, too many avoid the frying pan by jumping into the fire. They think that by dealing with people who aren't brokers and buying investments that aren't stocks, they can earn high returns without the risk the stock market entails. Eventually they find out the world generally doesn't work that way, but that's usually after they've lost all their money.

Unlicensed investment sales people and unregistered investment products are two of the biggest threats to investors' financial well being, according to securities regulators. The North American Securities Administrators Association and Florida Chief Financial Officer Tom Gallagher recently put both items near the top of their annual "top 10" threats lists.

Fortunately, these threats are easily avoided.

A license is not a guarantee of honesty, of course. However, it does mean that the person holding the license has passed an exam and falls under industry regulations for business conduct. If there has been disciplinary action against the person, you can find out. Furthermore, licensing means the company with which the broker is affiliated is responsible for supervising him or her and may be legally liable if something goes wrong.

You can find out if someone is licensed to sell securities in Florida and if the person has a history of disciplinary action by calling the state's Department of Financial Services toll-free at 1-800-342-2762.

If you want to move outside the realm of mutual funds, government bonds and stocks traded on national exchanges, it's crucial to be sure you're dealing with legitimate investments. You can call the toll-free number above to find out whether an investment is registered.

However, there are some investments you need not bother to check. Stay away from promissory notes, viatical settlements and pay telephone and ATM deals. If anybody tries to sell you any of those, just run in the opposite direction as fast as you can.

If a salesperson tells you an investment doesn't need to be registered, be suspicious. Be especially careful if the person claims that your money will be pooled with that of other investors to invest in something else. For example, investing in mortgages sounds secure, but what if your name isn't on the mortgage? And what if you and other investors in the pool have put up far more money than the property is worth?

Even legitimate investments sometimes turn out to be duds, but your chances of success are much greater if you've checked out the investment and the salesperson. They're even better if you are dealing with a company that has been in business for many years and has a good reputation.

If I wrote a will by myself, either a living will or a regular will, and had it notarized and witnessed, would it be as legal as the ones done by attorneys?

Maybe. The issue is not who prepares a will but whether it is prepared correctly.

Forms for a living will and designation of a health care surrogate are available for free on the Florida Bar Web site (www.flabar.org)

A will is trickier. In Florida, your personal representative must be either a relative or a Florida resident. There also are rules about the witnesses - you have to have at least two, who sign in each other's presence as well as your presence. They also should sign affidavits to make the will "self-proved."

It's worth a few bucks to have a lawyer make sure your will complies with state law. A lawyer also can help by advising you what should go in your will and what should be left out.

I won some money gambling. Can I reduce my taxes by deducting my gambling losses?

If you bet $10 on a single bet and won $50, then you deduct the $10 up front and report only $40 as income. However, if you bet $10 on each of three different bets and won $50 on one of them, you still report the $40 as income. The extra $20 in losses is deductible as an itemized deduction if you itemize.

Gambling losses are deductible only to the extent of your gambling winnings.

By the way, if you won a prize rather than cash, your income is based on its fair market value.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified August 24, 2005, 15:42:19]