- The Washington Times - Monday, December 2, 2002

If investors were graded on what they know about mutual funds, it seems that many would get an "F." When the Vanguard Group and Money magazine recently gave 1,000 shareholders a test on the basics of investing, the median score was a failing 40 percent.
The results indicate that investors, while they say they want more information from fund companies, could use some brushing up on the fundamentals themselves.
Retirement nest eggs are at stake, said Catherine D. Gordon, head of Vanguard Investment Counseling & Research Group.
"It is important these days, with more people managing their own investments, like, through 401(k) plans, whereas in the past they were in defined benefit [pension] plans," Ms. Gordon said.
Only 2 percent of those who took 2002 Investor Literacy test scored 90 or above.
The 20 questions were basic but still managed to stump most investors. The hardest question with only 16 percent getting the answer right asked them about the purpose of an index mutual fund.
Seventy-five percent failed to understand how fund expense ratios work, and nearly 70 percent didn't know how to best measure fund performance.
In the highest-scoring question, 70 percent knew that investors can contribute to both a 401(k) plan and an IRA.
If you're wondering how you'd rate, the test is available on Vanguard's Web site (www.vanguard.com). And if you're not happy with your score or feel the need to be more fund savvy, here are some things you can do:
Carve out some time to learn more about your finances and investments.
"Usually, the clients who don't have time to spend on their finances are pretty much illiterate [about them]," said Vernon Lee of Lee Investment Consulting in Raleigh, N.C.
Open your mutual fund or 401(k) statements and read them, financial planners urge.
Throughout the 3-year-old bear market, investors have acknowledged being so disgusted with their losses that they've tossed their statements unread into the trash. That might make it easier to ignore the declines, but it's no way to learn.
Seek out the kinds of materials that help you learn, said Steve Wetzel, a financial planning professor at New York University's School of Continuing and Professional Studies.
If you learn by pictures, then focus on the graphics in your fund materials rather than on the text. If you learn by listening, watch TV or listen to a tape.
But don't try to read or take in everything related to mutual funds. You'll be bored and turned off by information overload.
Use the Internet. Several fund companies, such as Vanguard and Fidelity (www.fidelity.com), have educational materials on their Web sites.
On fund researcher Morningstar's site, investors can look up mutual fund profiles, which include information on performance, fund holdings and ratings, and fund managers' names.
Morningstar.com also has a classroom section where investors can take online courses on stocks, funds and bonds. There are quizzes on such subjects as how companies become publicly traded and how to select an index fund.
Investors who are confounded by fund terminology and wouldn't know a net asset value from an expense ratio might want to turn to Investorwords.com or Investopedia.com.
Read books. There are tons of useful books on mutual funds. Go to the library or bookstore. Ask friends or colleagues what they would recommend.


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