, Aug. 12, 2013 /PRNewswire/ -- Just 11 percent of investors scored an 'A' on an eight-question investment literacy quiz, according to the recent John Hancock Investor Sentiment Survey. Another 20 percent scored high enough to earn a 'B,' but nearly half earned a failing grade, with 22 percent receiving a 'D' and 23 percent receiving an 'F.'
Investors were able to select correct answers to questions about financial concepts or product definitions, but most exhibited significant knowledge gaps. When it came to correctly answering a question about an optimal retirement savings strategy, knowledge declined further, with only 37 percent able to choose the correct answer.
The findings were drawn from the second quarter 2013 John Hancock Investor Sentiment Survey, a quarterly poll of affluent investors.
Almost all investors surveyed (94 percent) properly identified the definition of asset allocation as: "A method of assigning your financial contributions to different risk classes of investments." Dollar cost-averaging also was widely understood (85 percent) as: "When you purchase the same dollar amount of investments each month so when share prices are low you get more shares, and when share prices are high you get fewer shares."
However, when asked about the objective of index funds, which "Seek to match the investment returns of a specified stock or bond benchmark," roughly only six in ten were able to answer correctly. And only sixty-two percent understand that the price of a bond or bond fund decreases as interest rates rise.
Investors are clear about the tax treatment of Roth IRAs, with three-fourths stating that a Roth IRA is purchased with after-tax dollars. Seventy-seven percent correctly stated that term life insurance is less likely to have cash value than permanent life insurance. Most investors (73 percent) believe, correctly, that stocks have generated the best average returns over the last 20 years.