Poll: Investors Don't Know Much About Value, Growth

October 11, 2002 (PLANSPONSOR.com) - Many investors need badly to go back to school - at least when it comes to understanding the basics, a new study found.

An American Century survey designed to ask about value and growth investing concepts found that a scant 16% of investors were successful in answering at least seven out of 10 questions while fewer than half could get five out of 10 questions.

Only about half were able to accurately define a growth or a value investment. A quarter of respondents inaccurately told pollsters that growth stocks are those offering “a guaranteed rate of growth tied to the consumer price index.”

Another 15% defined growth equities as “stock in a company that specializes in agriculture, lumber, landscaping, and other organic products that are grown.”

Meanwhile, some 14% of respondents said value stocks were “in a company that specializes in valuable goods, such as precious metals and jewelry.”

The American Century study found many investors were similarly confused about growth and value funds’ historical trends. Some 36% of respondents believed incorrectly that a growth fund is more likely to invest in stocks than pay a significant dividend while about one in five correctly said value funds are actually more likely to invest in stocks than pay dividends.

However, respondents did seem to be more certain about some things. Some 68% agreed with the statement that diversifying a portfolio with both value and growth investments helps reduce risk while only one in five said going only with growth was the quickest way to riches.

The survey was conducted during the summer of 2002 and covered 300 US investors.