After all the recent scandals, one would think that investors would have become more knowledgeable about financial matters. However, many investors are ignorant when it comes to financial matters and are actually extremely careless when it comes to their money, a recent study by Securities Industry and Protection Corp. (SIPC) and the Investors Protection Trust reveals, according to the South Florida Sun-Sentinel.
Investors surveyed reported that they know the meaning of diversification, but knew little else. In addition, most investors do not read prospectuses and do not look into the history of their broker. On the brighter side, 90% of investors read their monthly account statements.
"We are encouraged that people understand the need to go over their account statements carefully to make sure that everything is in order," said SIPC President Stephen Harbeck. "But these findings indicate just how big a job remains."
The survey polled 2,000 investors, and 83% failed the 12-question test. Surprisingly, 41% of those surveyed understood the relationship between rising interest rates and bonds, being that as rates rise the value of existing bonds drop.
A whopping 80% of investors incorrectly believed that there is an organization that protects them against investment fraud losses, and many identified this company as Federal Deposit Insurance Company.
Not only do investors lack basic knowledge, but they are not well informed when it comes to what to do when it comes to their retirement accounts, the survey also revealed.
"We all recognize that investors need to know certain key facts and concepts," said Don Blandin, head of Investor Protection Trust. "But it may be even more important to their long-term financial security that investors learn the behavioral process of investing."
The study recommends that investors make sure to have a financial plan, read their monthly account statement, read prospectuses before they invest, and check out a broker before handing over any money.