A recent survey has found that 85% of U.S. investors couldn’t pass a basic “survival” quiz gauging their awareness of how to handle market downturns and other financial difficulties.
The survey was conducted for the Securities Investor Protection Corp. (the U.S. equivalent of the Canadian Investor Protection Fund) and the National Association of Investors Corp.
It found that investors are particularly ill informed about:
- what to do when they have lost money due to investment fraud or market reverses;
- how to deal with problem brokers; and
- the workings of both limit orders and margin accounts.
SIPC and NAIC developed a five-question “investor survival” quiz to measure investor awareness. The survey was conducted by Opinion Research Corporation International.
The lack of investor knowledge is disheartening. Only 1% of investors surveyed scored four out of five, and the mean score of those surveyed was 1.5. The only question that most investors got right related to declaring bankruptcy.
Almost two in three investors do not know what to do first when they suspect they are dealing with a problem broker.
Investors surveyed had particular trouble understanding margin calls and limit orders. More than four in five investors do not understand how margin calls work; fewer than one in four investors understand the use of limit orders.
Less than one in five investors know there is no “insurance” for stock market losses, 33% thought that this is the job of the U.S. Securities and Exchange Commission.
The national survey was conducted between May 31 andJune 4. Telephone interviews were conducted among a national probability sample of 2,067 adults comprising 1013 men and 1054 women 18 years of age and older, living in private households in the continental United States. The margin of error is plus or minus 3%.