10. Liquidity | 37% puzzled
Markets thrive on liquidity — the degree to which an asset or security can be bought or sold easily — but Americans weren't confident as to what it meant.
9. Mutual Fund | 39% puzzled
Considering many portfolios are made up of mutual funds, advisors should make sure they define these ubiquitous products to clients who might not understand.
8. Roth IRA | 39% puzzled vs. IRA | 36% puzzled
A majority of Americans seem to understand what IRAs are, but don’t understand what makes a Roth IRA different.
7. Capital Gains & Losses | 40% puzzled
In a capitalistic society, where portfolios are measured by gains and losses, it may seem baffling that only 60% of Americans surveyed understood capital gains and losses.
6. Annuity | 41% puzzled
Many in the financial services industry have strong pro and con feelings about annuities, but many Americans don't understand them.
5. Endowment | 42% puzzled
A term used more by institutions or ultra-high net worth investors.
4. Stock Options | 43% puzzled
Again, stock options might not be on the radar of the typical American, as usually these are part of incentive packages and compensation for executives.
3. Asset Allocation | 44% puzzled
Advisors work every day to allocate investor funds to various products. Yet many investors don’t know what that means.
2. Index Fund | 49% puzzled
A standard passive tool in any investor’s portfolio, only half of those surveyed knew what these funds were or how they work.
1. Bitcoin | 52% puzzled
As the cryptocurrency has been in the headlines for the past couple years, less than half of Americans know what it is or how it works. Maybe that’s a good thing.
(Related: The Most Googled Financial Questions, by State)
It may be shocking that only 16% of Americans have a high level of financial literacy, according to research by the TIAA Institute, but more surprising is that many don’t have a clue about what relatively simple terms, e.g. recession or annuity, mean. Realizing these lapses can prevent advisors from talking over their clients’ heads and losing them in a rebalancing discussion. The good news is a majority, 88%, understand the term “savings account.”
The Knowledge Academy analyzed findings from a YouGov survey of 1,135 American adults, asking how confident there are in the meaning of common financial terms.
Here are 10 terms advisors might use every day and the share of Americans who said they were confident in their meaning.
— Check out Top 20 Fastest-Growing Financial Services Companies: Inc. 5000 on ThinkAdvisor.