Young investors are more ignorant as well as more optimistic. Almost two-thirds correctly answered stocks. The percentage of correct answers dropped sharply when respondents were asked the relationship between the rise and fall of interest rates and the rise and fall of bond prices. Although the direction of interest rates and the effect on bond prices is frequently reported in business-news pages, only 39 percent of respondents knew that bond prices decline when interest rates rise. Only 42 percent of bondholders gave the right answer.
Mutual funds are the entry point into equity investing for most novices.
As more and more people have wanted to get in on the raging bull market, mutual funds have proliferated. Yet a majority of investors are ignorant of the costs built into ownership of mutual fund shares. More than half of those surveyed, in other words, didn't know that mutual fund ownership has a cost attached. Still, more than half of the mutual share owners were unaware they paid fees, with 37 percent answering incorrectly, and 18 percent saying they didn't know. W iping out illiteracy of any kind requires appropriate educational materials.