It’s the first of May, hip-hip-hooray, American investors are smarter today!
Why are they smarter? Well, they must have improved their financial acumen because Congress designated last month as Financial Literacy Month.
In fact, April 25 was Financial Literacy Day in America.
Do you mean to tell me the big day came and went and you didn’t even know it?
That’s OK. If you subscribe to this periodical, you have a higher net worth and income than the average American, so your financial literacy is probably better, too.
There is no doubt Americans are pretty dumb when it comes to understanding finance.
Every two years, high school students nationwide are tested by the government on their knowledge of finance. This year’s batch got (or more likely guessed) 52 percent of the answers right, which gives them an F.
Look on the bright side. It’s probably better than they would have done on a world history or geography test.
One question asked which method of saving or investing tends to have the highest growth over a period as long as 18 years: a government savings bond, a savings account, a checking account or stocks. Only 14.2 percent picked the correct answer of stocks. Almost 45 percent said a government savings bond.
Why should we expect teen-agers to know much about investing, since their financial experience pretty much begins and ends with a Starbucks gift card?
But what is pitiful is that adults aren’t much brighter than their teen-age children when it comes to money.
My firm manages money for wealthy people, those at the top of the financial food chain.
I would bet a higher percentage than you would think could not explain the difference between a stock and a bond. And I would wager even fewer could explain what the purpose of the stock market is and why is it vital to capitalism.
Teen-agers probably don’t think the stock market is the place to create wealth because they have heard their parents gripe about it for a few years.
In fact, the way teen-agers answer the investing question would probably be a good contrary market indicator. When even teens know stocks are the ticket, it would likely be best to scalp your ticket and buy a government bond.
Today, the Dow Jones industrial average is bumping up against the glory days’ highs reached six years ago (although the other major indexes are still well below their high water mark). This year’s aggregate earnings of the 500 largest U.S. companies will be 25 percent higher than those companies earned six years ago.
In addition to higher earnings, there are other bullish signs: Mutual fund money is still chasing foreign markets, investor sentiment is not optimistic, and NYSE specialists (the real smart folk) have a low short-sale ratio.
Overall, things look good. So this year, I don’t think you should follow the old adage of “sell in May and go away.” Stick around into summer.
Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or firstname.lastname@example.org.