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

JPMorgan tells fintech firms to start paying for customer data
JPMorgan tells fintech firms to start paying for customer data

The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.

FINRA snapshot shows concentration in largest firms, coastal states
FINRA snapshot shows concentration in largest firms, coastal states

The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.

Why advisors to divorcing couples shouldn't bet on who'll stay
Why advisors to divorcing couples shouldn't bet on who'll stay

Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

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.