Promissory Notes: Promises, Problems
|March 09 2010|
Many investors seek out safe, fixed-rate investments, especially ones that can boost the interest they earn. You, too, may be looking for sound investments that pay better than average interest to generate income or meet the needs of your overall investing plan.
But as you consider new investment products or services, always remember the correlation between risk and reward: every investment involves some degree of risk, and the greatest-yielding investments usually carry the highest levels of risk.
One interest-paying investment is the promissory note. These are an important means by which companies raise capital. Legitimate promissory notes are marketed almost exclusively to sophisticated or corporate investors that have the resources to research thoroughly the companies issuing the notes and to determine whether the issuers have the capacity to pay the promised interest and principal.
For sophisticated or corporate investors, promissory notes can be a good investment. These instruments provide a reasonable reward for those who are willing to accept the risk. However, promissory notes that are marketed broadly to the general public often turn out to be scams. And even legitimate notes carry some risk that the issuers may not be able to meet their obligations.
Unfortunately, there have been many instances of unscrupulous individuals pushing bogus promissory notes. They’re being sold as instruments that guarantee above-market, fixed interest rates, while safeguarding their principal. While fraudulent promissory notes appear to give investors the two things they desire most — higher returns and safety — they may not be worth the paper they’re printed on.
Remember, if something sounds too good to be true, it probably is.
PDF format, 298KB.
This brochure was produced by the North American Securities Administrators Association, FINRA, the Securities and Exchange Commission and the Securities Industry and Financial Markets Association.
ASK YOURSELF: DOES THIS INVESTMENT MAKE SENSE FOR ME?
Investigate before you invest. And don’t forget to consider the risk-reward ratio the investment is offering – a higher yield generally means higher risk.
Then comparison-shop. Look for similar or nearly as high returns with less risk whenever possible.
To learn more about promissory notes, check with the following:
Securities and Exchange Commission
Securities Industry and Financial Markets Association (SIFMA)
|Last Updated ( March 09 2010 )|
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