BOSTON, 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.
However, investors struggled in determining the better retirement savings strategy when asked to choose between saving "$1,000 per year from age 35 to 65 in an account earning eight percent interest" and saving "$1,000 per year from age 25 to 35 in an account earning eight percent a year and then stopping saving."
Nearly four in ten were able to choose the second alternative as the better strategy. Almost half said the first choice was correct, and 16 percent said the two strategies were the same.
About the John Hancock Investor Sentiment Survey
John Hancock's Investor Sentiment Survey measures investors' feelings about the current economic climate and their evaluations of what represents a good or bad investment given the current environment. The poll also asks consumers about their confidence in reaching key financial goals and likelihood of purchasing financial products and services. This online survey was conducted by independent research firm Greenwald & Associates. A total of 1,078 investors were surveyed from May 13th to May 24th, 2013. Respondents were selected from among members of Research Now's online research panel. To qualify, respondents were required to participate at least to some extent in their household's financial decision-making process, have a household income of at least $75,000, and assets of $100,000 or more. The data were weighted by age and education to reflect the population of Americans matching the survey's qualification requirements. In a similarly-sized random sample survey, the margin of error would be plus or minus 3.05 percentage points at the 95% confidence level. Due to rounding and missing categories, numbers presented may not always total to 100%.
About John Hancock Financial and Manulife Financial
John Hancock Financial is a division of Manulife Financial, a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. Operating as Manulife Financial in Canada and Asia, and primarily as John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were C$576 billion (US$539 billion) as at June 30, 2013. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial can be found on the Internet at manulife.com.
The John Hancock unit, through its insurance companies, comprises one of the largest life insurers in the United States. John Hancock offers and administers a broad range of financial products, including life insurance, annuities, mutual funds, 401(k) plans, long-term care insurance, college savings, and other forms of business insurance. Additional information about John Hancock may be found at johnhancock.com.
SOURCE John Hancock Financial