We’ve added Safety Labels to potentially risky investments
The stock market has been one of the greatest drivers of wealth in human history and the U.S. stock market has an annual return rate of about 10 percent on average.
Still, one of the very first things a professional will tell you about investing is that it’s never without risk. Just because the stock market goes up over time doesn’t mean it always goes up. And not every stock is bound to go up, even if that is the direction of the overall index.
These times are especially unprecedented and volatile. Volatility in the market could mean opportunity, but it could also mean unpredictability and risk, especially for certain types of stocks and investment strategies. (Just last week, we halted the buying of Hertz due to unprecedented circumstances, before the SEC stepped in to voice their own concerns.)
Safety Labels for added context
Individual securities come with varying degrees of risk. We want our members to understand when something is potentially risky, so we’re adding Safety Labels to a subset of securities on our platform.
These labels appear before an investor makes a purchase, providing additional context before confirming the buy. Currently, we’re adding a label to potentially risky stocks as cited by the SEC.
Companies that filed for bankruptcy
Per the SEC, investing in bankrupt companies is risky because “although a company may emerge from bankruptcy as a viable entity, generally, the creditors and the bondholders become the new owners of the shares.”
Stocks with very small market caps
Market cap is a key indicator of a company’s total net worth and is calculated by multiplying the share price by the total number of outstanding shares. The SEC notes that micro-cap (between $50MM and $300MM market cap) and nano-cap (below $50MM market cap) stocks can be risky for a couple of reasons. First, it might be more challenging to get data and information from smaller companies, which can lead to misinformation. Second, micro-cap and nano-cap stocks tend to be more volatile and less liquid.
Some specialized ETFs
According to the SEC, leveraged and inverse ETFs are risky because they are designed to achieve their objectives on a daily basis. The performance of these ETFs in the long-term can be substantially different than the daily objectives, meaning that “you could suffer significant losses even if the long-term performance of the index showed a gain.”
Access with accountability
Stocks with the Safety Label can still be purchased on our platform. Our aim is not to restrict the investment options available to our members; rather, we want to ensure novice investors are aware of relevant information before they decide to invest.
That said, we fundamentally believe that there are certain investment approaches that necessitate a higher degree of experience. The SEC considers day-trading, for example, to be riskier than longer-term investing because you are more susceptible to fluctuations in stock price given the narrower timeframe. Public has a strict no day-trading policy.
Our long-term focus
We’re focused on building tools that promote responsible habits for our community of mostly-novice investors. An example of this is the Long-Term Portfolio, which makes it possible to “lock” selected investments in for the long-term, and automated dividend reinvesting.
We will also continue to evolve the social features of our product, which offer a unique opportunity for people to build their financial literacy within a broad community of investors.
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Questions or feedback? Drop us a line at hello@public.com or on Twitter @publichello.
Examples are for illustrative purposes only. Past performance does not guarantee future results. This is not investment advice. See Public.com/disclosures.
