Improving Investor Savvy Part III: The ABC’s of Investing

By: La’ Nise Harrington Spring 2017 Student Intern

You may be a newbie to investing or have been investing for years. Either way you probably feel that you know the basics to investing and all the advanced concepts are for your financial professional to handle. However, when FINRA conducted a basic investor literacy quiz most people did not score higher than 50 percent. Part III of the Improving Investor Savvy series moves on to its third question from FINRA’s July 2015 National Financial Capability Study.

How well do I know the basics of investing?

A simple question on its face, but it includes a broad range of questions such as:

  1. What are the general benefits of riskier investments?
  2. What is the difference between stocks and bonds?
  3. What is the difference between municipal and government bonds?
  4. What happens to investments when a company files for bankruptcy?
  5. What is selling short?
  6. What is the difference between nominal returns and real returns?
  7. What is buying stock on margin?

It may seem excessive, but every investor should be able to answer these questions. The answers to these questions and more investing basics can be found on the Investor.gov website and the FINRA quiz. However, basic investing knowledge should also include knowing about risk. Alongside knowing the difference between a stock and a bond you should know how to lessen your chances of being a victim of investment fraud or scams. If you do not know, start by visiting the SEC’s Office of Investor Education and Advocacy. It has resources that can help lessen your risk by increasing your knowledge. Visit here for a place to start.