What is a Legal List?

Sometimes referred to as approved lists, legal lists are listings of investments that are considered legal investments for trust funds, savings banks, insurance companies, and other types of financial institutions. Lists of this type are generally created by government entities, with each of the investment opportunities researched thoroughly. A legal list can help to reduce the possibility of getting involved with a fraudulent investment scheme, and thus losing the resources invested by individuals in everything from a pension plan to an insurance policy.

In order to be selected for inclusion on a legal list, an investment opportunity must be in full compliance with the standards and regulations set in place by the government agency that oversees the creation and maintenance of the list. In the United States, the creation of legal lists is usually left to state governments, although most states follow guidelines suggested by the federal government. Placement on a legal list is not something that happens in a short period of time. Government officials must look closely at each investment opportunity, how it is structured, the promised rate of return, the management process, and any other factors that are considered necessary by local laws. This process may take months to accomplish, depending on the nature of the investment and the regulations that apply to the type of organization that is offering the opportunity.

The goal of the legal list is to protect the finances of consumers who wish to invest in a given opportunity. While investing in any form does carry a small amount of inherent risk, the idea is to keep that risk within a reasonable range. Thus, a consumer who is considering investment in a particular 401(k) plan can rest assured that the investments undergirding the plan are considered acceptable by government standards. The same general idea applies to consumers who want to open some type of retirement account and contribute to it regularly. People who wish to make contributions to an Individual Retirement Account in the United States or an Individual Savings Account in the United Kingdom can do so with the knowledge that the administrators of the account are investing the money in ventures that are considered legal by the government.

While a legal list does greatly reduce the risk involved with investment strategies, it is important to remember that factors that have nothing to do with the legality of the investments could still cause the return to be adversely affected. Shifts in the economy, natural disasters, and even changes in consumer demand can undermine the profits earned and thus cause the investment to not produce the desired results. For this reason, a legal list should be viewed as a starting point for identifying viable investments, and not as the only resource to consider.