Most US investors lack advanced knowledge of investment risk, according to new research from the FINRA Investor Education Foundation and the Stanford Initiative for Financial Decision-Making. InvestmentNews reported on the findings on October 8, 2026, and said the work links gaps in risk literacy to fraud vulnerability and weaker retirement outcomes.
According to FINRA's release, the organizations published the research on October 5, 2026, as part of World Investor Week, which runs October 5 to 11. The study is titled "What Separates Sophisticated Investors? Risk Literacy and Investment Decision-Making." Financial Planning reported that it draws on the FINRA Foundation's 2024 National Financial Capability Study.
FA-Mag reported that the study examined 2,861 US investors who hold investments outside retirement accounts. According to FINRA, researchers used 13 investment knowledge questions to sort participants into three groups: low, basic-only and advanced literacy.
Only 18% of investors demonstrated advanced literacy, FA-Mag reported. Some 66% fell into the basic-only group and 16% showed low literacy. FA-Mag said the advanced questions covered diversification, interest rate risk, leverage and margin risk, short selling, option payoffs and the priority of claims in a bankruptcy.
The research also looked at how literacy relates to susceptibility to fraud. Finance Magnates reported that advanced literacy was associated with lower fraud susceptibility, though the study does not establish causation. Stockpil reported that when presented with a hypothetical offer of guaranteed, risk-free 25% annual returns over five years, 54% of basic-only investors said they would invest, compared with 35% of advanced investors.
Sources of information differed by literacy level, according to FA-Mag. It reported that 74% of investors with low literacy rely on informal sources such as friends, family and colleagues, compared with 51% of those with advanced literacy. Some 43% of low-literacy investors follow advice from social media influencers, versus 13% of advanced-literacy investors.
Financial Planning quoted FINRA Foundation President Christine Kieffer as saying the research underscores the importance of emphasizing risk-related concepts in investor education and elevating financial fraud recognition as a complementary subject.
The FINRA Foundation is the research and education arm of FINRA, according to the organization's release. The Stanford initiative is a collaboration among the Stanford Graduate School of Business, the Stanford Institute for Economic Policy Research and the Stanford Department of Economics, Financial Planning reported.