Vanguard Survey: Many Investors Clueless on Bonds

September 25, 2002 ( - Many investors have a long way to go before understanding how the various financial markets work - particularly when it comes to bonds, a new survey found.

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.”