Investors Have Little Knowledge of Investing Principles: FINRA

The FINRA Investor Education Foundation recently released a new research study, finding that investors have low knowledge of important investing principles.  The FINRA Foundation further found that many investors are perplexed or unsure about the fees charged in their investment accounts. Approximately one-third of investors believe they do not pay any fees for their accounts or don’t know the amount they pay.

Approximately 2,000 people with investment accounts responded to the survey.  The study contains the following findings, among others:

• Investors have low knowledge about investment principles and practices.  For example, 46% of the survey respondents believe an investment’s past performance is a reliable indicator of future results.  And only 30% understand that index funds charge lower fees than actively managed funds.  
• Younger investors and small portfolio holders are more likely to invest in cryptocurrency.  For example, investors between the ages of 18 and 34 and investors whose portfolios are valued under $50,000 are more likely to invest in cryptocurrency.
• 17% of respondents are using social media for investment information.  Although we don’t think it’s a good idea for anyone to make investment decisions based solely on information contained in social media, 17% of the investors surveyed said they use social media to obtain investment information.
• Investor tools like BrokerCheck or Investor.gov are being used by less than 10% of investors.  The study found that investors are not very concerned about investment fraud and that investors are confident that regulators can prevent fraud.  Unfortunately, regulators have limited resources and it’s impossible for them to catch every fraud. We urge all investors to use investor tools like BrokerCheck to view the background and disciplinary history of their stockbroker.
• Investors are more likely to overestimate than underestimate their portfolio’s performance.  While only 4% believe their portfolio will underperform the market, 29% believe their portfolio will outperform the market. 

Gerri Walsh, president of the FINRA Foundation and FINRA’s Senior Vice President for Investor Education stated, “These research findings underscore the need for researchers, policymakers, advocates and industry stakeholders to continue to develop innovative investor tools and resources to better educate investors and to help protect them from fraud.”    

To access the full study, datasets, survey instrument and methodology, visit USFinancialCapability.org.  The study is entitled “Investors in the United States: A Report of the National Financial Capability Study.”

The Business Trial Group helps investors recover their investment losses on a contingency basis.  This means that you won’t owe us anything if we don’t successfully recover money for you. We regularly battle against brokerage firms, investment advisory firms, and banks, and have helped investors recover tens of millions of dollars of investment losses. If you have suffered investment losses, you may have a viable legal claim.  Please contact us at 800-816-1031 for a free consultation.