The Vanguard Group announced that the 1,000 people who completed the 2002 Vanguard/MONEY Investor Literacy Test had a mean score of 40% – up slightly from the 37% in the 2000 version of the quiz.
Among the topics proving to be most challenging, according to Vanguard, was the general area of bonds. The results showed that:
- nearly 70% of the respondents did not understand the inverse relationship between bond prices and interest rates
- 60% of the respondents misconstrued bond maturity
- 58% did not know that income from municipal bonds was federally tax-exempt.
The results also revealed that investors were confounded by fund costs. Some 75% of the respondents could not accurately define expense ratio and 64% did not understand the impact of expenses on fund returns.
Nearly 70% of the respondents could not correctly identify the charge to purchase fund shares as a “sales load.”