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SEC Says Retail Investors Are Clueless About Stocks

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In 182 short pages, this SEC study shows retail investors lack basic financial literacy.

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The SEC also engaged the Library of Congress to conduct a review of other studies done on the topic. They were careful to differentiate qualitative research results from empirical research results ("which are based on the results of the quantitative research that are statistically significant and can be extrapolated to a larger population of retail investors.")

No matter which way they sliced it, whether focus groups, online surveys, or public comments, the results (which, cumulatively, reached approximately 4,800 individuals), seemed the same.

"[I]nvestors do not understand the most elementary financial concepts, such as compound interest and inflation....[or] the differences between stocks and bonds, and are not fully aware of investment costs and the impact on investment returns." In another part of the report the list of information that eluded investors included "credit risk, liquidity, and inflation."

Aside from tripping over math, macro concepts, and legal language, the hapless retail investors didn't even fare well on reading their own trade confirmations or portfolio account descriptions with half of them failing comprehension questions regarding an account statement exhibit for stocks. When given an exhibit of a typical account statement for mutual funds, approximately 57.5% said they "somewhat" understood the information.
No positions in stocks mentioned.
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