It’s anyone’s guess how stocks and other financial assets will perform this year in the wake of mostly stellar results in 2019, but one forecast is a safe bet -- investment-related scams will be prevalent.
That’s the view of Texas securities regulators, who expect 2020 to be a busy year for fraudsters armed with increasingly sophisticated means of targeting potential victims, particularly the elderly, and emboldened by the recent market buoyancy.
"The bad actors, the scam artists, they can capitalize upon social media and technology much more readily now than ever," said Joe Rotunda, director of enforcement at the Texas State Securities Board. "We are busier now than we have ever been."
Just about everything went right from an investment perspective in 2019, with the S&P 500 stock index climbing nearly 30%, the U.S. bond market up more than 8%, as measured by a popular benchmark, and solid gains in myriad other asset classes.
As 2020 gets underway, Rotunda said the banner results from last year are likely to shape the sales pitches of scammers pushing non-traditional -- and inappropriately risky -- alternative investments.
For instance, he said, potential victims worried that mainstream markets have become too lofty will have their fears of an imminent meltdown fanned by unscrupulous promoters hawking sketchy offerings as safe harbors. If a target instead is kicking himself or herself for missing out on 2019’s big run, similarly perilous products will be touted as crucial to catching up.
"The pitch can go one or two ways," Rotunda said. "It can be: ’The economy is great, you need to get in on this, don’t miss out.’ The pitch may also be: ’This isn’t sustainable, a crash is coming, we’re seeing warning signs (and) you need to get out of traditional markets.’ "
The securities board -- which says it has helped win $45 million in restitution for victims of investment fraud over the past decade through its enforcement actions, as well as $36 million for the state in civil and criminal fines -- recently red-flagged what it considers the top investor threats for 2020.
The tally covers categories of alternative investments that have been fertile ground for fraudsters, such as precious metals, private oil and gas offerings, cryptocurrency-related ventures and non-publicly traded real estate investment trusts. The agency also is warning people to steer clear of unregistered individuals selling financial products, avoid engaging with cold callers and be wary of promoters specifically targeting the elderly.
Robert Phipps, co-founder of Austin-based financial advisory company Per Stirling Capital Management, said the alert from the securities board is solid advice for investors. It’s not uncommon -- particularly after big moves in the markets -- for people to react emotionally and end up making poor investment choices, he said.
"The main thing (an investor) needs to understand is what they own and why they own it (because) you shouldn’t invest in anything you can’t understand," he said. "The old classic -- ’if it seems too good to be true ...’ That one still works."
Phipps, whose firm has more than $1 billion in assets under management, said he thinks people should only turn for investment help to sources they trust who don’t have financial stakes in the outcomes, or they should seek out professional advisers who are fiduciaries, meaning they’re legally bound to act in their clients’ best interests.
Most investors who don’t rely on professionals are probably best served by sticking to index funds that simply track the broad markets for stocks and bonds, Phipps said. In addition, he views it as good practice for investors to establish asset allocations they’re comfortable with and then to rebalance to those parameters every six to 12 months, while committing to regular investment schedules so that they avoid trying to time the ups and downs of the market.
"Lots of studies have shown that most people do not time markets well," Phipps said. "The majority of people do most of their buying within 10% of a (market) top and the majority of their selling withing 5% of a bottom."
As for 2020, he said he’s anticipating generally solid returns for U.S. stocks, although he expects the gains to fall significantly below those of 2019 and the year to be more volatile overall. Phipps, who manages Per Stirling’s growth portfolio, said he’s currently carrying a higher percentage of cash in the portfolio than typical so that he can take advantage of "buying opportunities along the way," and he’s increasing his allocation to international stocks because he likes their valuations.
The Texas State Securities Board, meanwhile, is anticipating a full plate this year chasing potential frauds. The agency recently released the latest edition of its Texas Investor Guide, a free booklet outlining investment strategies and advice for avoiding scams. Printed copies are available by contacting the agency’s communications director, Robert Elder, at firstname.lastname@example.org.
Rotunda, the enforcement director, said he’s concerned in particular about increased targeting of elderly people in 2020. As the number of seniors using smartphones and social media rises, he said fraudsters have more opportunities to deploy con games or trick them into revealing financial fears and other sensitive information that can be used to scam them later.
"It has really created a fertile environment" for bad actors, Rotunda said. "It’s much easier than ever to steal money, especially from the elderly."