How well do you understand the basics of investing? Take this Investor Literacy quiz below to find out!
Get the answer right, and the answer will turn green. Get it wrong, and it will turn red. You'll see a percentage show up indicating the percentage of fellow readers that selected the different options on this quiz, and you can scroll back through your responses when you're done. Then, read on to see how your results compare to those of a large group of investors tested by the by the FINRA Investor Education Foundation.
So how'd you do?
You might be surprised to learn that some 56% of the investors with non-retirement investment accounts surveyed by the FINRA Investor Education answered four or fewer questions correctly, according to the Foundation's 2016 Financial Capability Survey. (Though it's worth noting that respondents had the choice to say "I don't know" to any given question to rule out lucky guesses.) In fact, just 1% of the 2,000 people surveyed got a perfect score, answering 10 out of 10 questions correctly.
The question that investors answered correctly most often was the risk-and-return question, with more than three-quarters answering that it was indeed true that riskier investments tend to provide higher returns over time. The question about nominal versus real returns, on the other hand, stumped investors the most, with just 12% of survey respondents answering that question correctly.
Generally, men scored higher than women, with men answering 4.9 questions correctly on average versus 3.8 questions for women. And each subsequent age cohort improved its score, with 18- to 34-year-olds answering 3.8 questions correctly on average compared to 4.7 correct answers on average for the 55-plus age group.
Meanwhile, those with the largest investment portfolios -- defined by the survey as those with more than $250,000 -- performed the best as a group. In fact, it was the only group that managed to score more than 50% on the quiz, answering an average of 5.1 questions correctly. In other words, even the best-performing group didn't do all that well.
Gerri Walsh, the president of the FINRA Investor Education Foundation, said that in more general surveys of financial literacy, investors with non-taxable accounts earned higher scores than others.
"People who had taxable accounts were in fact were more financially literate than the overall general public and certainly folks who had no accounts at all," she said. Still, she noted their results on the investor survey left much to be desired.
"While they know more [than other consumers] on a relative basis, they still score low on an absolute basis," she said.
The lack of financial and investor literacy, as discouraging as it may be, is what drives FINRA and the FINRA Investor Education Foundation to do much of the outreach that they do, Walsh said.
"That's why we engage in so many different ways to raise awareness of key investing concepts," she said.
To learn more about the FINRA Investor Education Foundation and the educational resources it provides, check out its website here.