Investors don't know much about investment basics, Finra finds

Investors don't know much about investment basics, Finra finds
Regulator's Investor Education Foundation survey reveals little knowledge of key concepts.
DEC 12, 2019
What are you buying when you invest in a stock? In a bond? According to research from the Finra Investor Education Foundation, two-thirds of adults who hold taxable investment accounts couldn't correctly answer a basic quiz of investor knowledge that contained those questions and eight others. In addition to confusion and ignorance of investment basics, such as past performance being no indication of future results, the study also found that many investors are confused about the various fees they pay for investing. Nearly one-third of investors believe they do not pay any fees or expenses at all for their investment accounts or don't know how much they are paying, according to a release about the study, "Investors in the United States: A Report of the National Financial Capability Study." [Recommended video:Bringing financial literacy to teenage girls through Rock the Street, Wall Street] The study was based on data from approximately 2,000 survey respondents who indicated that they have investments held in nonretirement accounts, though most also have retirement accounts. Other findings include: • Less than a third (30%) understand that the main advantage of index funds over actively managed funds is generally lower fees and expenses. • Nearly one in five (18%) are considering investing in cryptocurrencies, and 12% are already invested. • Among investors who allow a professional to choose investments for them, nearly three-quarters (72%) also make decisions on their own at least some of the time. Similarly, among those who trade online, more than half (51%) also trade through their financial adviser. • Free online services, websites and blogs are the most frequently cited channels for obtaining investment information (46%), followed closely by newspapers, magazines, and books (42%). Social media is used for investment information by only 17% of respondents. • Usage of investing-related tools like BrokerCheck or Investor.gov is low — 7% and 9%, respectively. However, in spite of low investor knowledge, investors are less concerned about investment fraud. Investor confidence in the ability of regulators to prevent fraud has increased. • Investors are more likely to overestimate than underestimate their portfolio's performance. Only 4% think their portfolio will underperform the market, compared to 29% who think their portfolio will outperform. Men are more likely than women to believe they will beat the market (32% versus 25%). • When asked how they responded to the precipitous stock market drop in February 2018, only 7% of investors reported selling securities. More than one in five (22%) took the event as an opportunity to buy more stocks.

Latest News

Married retirees could be in for an $18,100 Social Security cut by 2032, CRFB says
Married retirees could be in for an $18,100 Social Security cut by 2032, CRFB says

A new analysis finds long-running fiscal woes coupled with impacts from the One Big Beautiful Bill Act stand to erode the major pillar for retirement income planning.

SEC bars New Jersey advisor after $9.9M fraud against Gold Star families
SEC bars New Jersey advisor after $9.9M fraud against Gold Star families

Caz Craffy, whom the Department of Justice hit with a 12-year prison term last year for defrauding grieving military families, has been officially exiled from the securities agency.

Navigating the great wealth transfer: Are advisors ready for both waves?
Navigating the great wealth transfer: Are advisors ready for both waves?

After years or decades spent building deep relationships with clients, experienced advisors' attention and intention must turn toward their spouses, children, and future generations.

UBS Financial loses another investor lawsuit involving Tesla stock
UBS Financial loses another investor lawsuit involving Tesla stock

The customer’s UBS financial advisor allegedly mishandled an options strategy called a collar, according to the client’s attorney.

Trump's one big beautiful bill reshapes charitable giving for donors and advisors
Trump's one big beautiful bill reshapes charitable giving for donors and advisors

An expansion to a 2017 TCJA provision, a permanent increase to the standard deduction, and additional incentives for non-itemizers add new twists to the donate-or-wait decision.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.