Only 18% of U.S. Investors Show Advanced Knowledge, and It's Mostly About Risk

Most people who invest outside a workplace retirement plan can tell you what a stock is. Far fewer can explain what happens to a bond’s price when interest rates go up. According to a new research brief, that gap is what separates the most knowledgeable investors from everyone else.

The brief, What Separates Sophisticated Investors? Risk Literacy and Investment Decision-Making, comes from researchers at the FINRA Investor Education Foundation and the Stanford Initiative for Financial Decision-Making. It found that only 18% of these investors reach an advanced level of investment knowledge, and that advanced knowledge is defined mainly by understanding risk, not just by knowing the terms.¹ The research was released October 5, 2026, to kick off World Investor Week.²

Why it matters: in the survey, advanced investors were more likely to have healthy money habits and less likely to bite on a too-good-to-be-true pitch. Investors who knew only the basics looked a lot like those who knew very little.¹

What the survey asked

The authors used the foundation’s 2024 National Financial Capability Study, including an Investor Survey of 2,861 adults who own investments outside a retirement plan. The findings describe only that group, not all Americans.¹

Respondents answered 13 knowledge questions. Five basic ones covered what stocks and bonds are, interest, inflation and the tradeoff between a 15-year and a 30-year mortgage. Many of the eight advanced questions dealt with risk: how spreading money across investments (diversification) smooths out swings, how borrowing to invest (leverage) magnifies both gains and losses, how bond prices react to interest rates, how an option’s payoff depends on the price of what it’s tied to, and which securities get hit first in a bankruptcy. A few covered product details instead, such as short selling, index fund fees and how municipal bonds are taxed.¹

The basics went fine. About 84% got at least three of the five basic questions right. Only 18% got at least five of the eight advanced ones. Overall, 16% of investors landed in the low group, 66% in basic-only and 18% in advanced.¹⁵

Where the knowledge showed up

After accounting for demographics, advanced investors were nine percentage points more likely than low-literacy investors to have tried figuring out how much they need for retirement. They were eight points more likely to have three months of emergency savings and 15 points less likely to report costly credit card habits like carrying a balance or paying late fees. Basic-only investors showed no statistically significant difference from the low group.¹ These are links found in survey data, not proof that the knowledge caused the better habits.

Advanced investors also tend to be older, more educated and more experienced: 78% have invested for more than a decade, compared with 31% of low-literacy investors. Low-literacy investors are more likely to be younger, lower-income and less educated, and more likely to be women or Black or Hispanic.¹

Where people get their information differed too. Among low-literacy investors, 74% rely on friends, family or coworkers and 43% follow a social media personality. Among advanced investors, those figures were 51% and 13%. Advanced investors lean more on finance articles and brokerage research tools.¹

The 25% test

The survey described a hypothetical pitch promising a guaranteed, risk-free 25% return every year for five years. Even among advanced investors, 35% said they’d be willing to invest. Among low-literacy investors it was 49%. The most willing group was the basic-only investors, at 54%. The authors say basic knowledge alone doesn’t protect against fraud.¹²

Worry didn’t line up neatly with risk, either. About 55% of low-literacy investors said they worry about investment fraud, compared with 24% of advanced investors, and the study notes that worrying and actually being vulnerable are different things.¹

What the authors recommend

The authors call for investor education that goes past definitions to risk and how to manage it. They want it delivered where investors already spend time, including social media, matched to what people already know, and paired with fraud recognition taught as its own subject. They point to the SEC’s Investor.gov and FINRA’s investor resources as models.¹ The brief did not test whether that kind of education raises knowledge or improves outcomes.

“This research underscores the importance of emphasizing risk-related concepts in investor education and elevating financial fraud recognition as a complementary subject,” FINRA Foundation President Christine Kieffer said in the release.³

The brief summarizes a working paper that has not yet been peer-reviewed. It draws on FINRA’s own survey data, and it says the views are the authors’ and not FINRA’s.¹ For curious investors, it also works as a fairly specific study list: diversification, leverage, interest rates, options and who gets paid first when a company goes under.