Be Smarter, Be Wealthier


Most people believe in the value of education. With knowledge comes strength, and the ability to handle daily pressures because knowledge provides guidance in how events will take place. 

But knowledge is also considered dangerous. There is such a thing as knowing too much. 
When it comes to finances and investing, knowledge is a valuable asset. Even for investors who let their advisor make all the decisions, having knowledge of the hows and whys certain investments work makes for better communication between an advisor and his client. 
Where do you rank yourself in terms of knowledge regarding investments and finances? Do you wish you were smarter on the topic? Is your knowledge level a hindrance or a help in making investment decisions?
Spectrem’s study Portfolio Trends, Expenditures and Perceptions of Providers offers details about investors and their investment allocations, and then segments investors based on certain demographics. One of those demographics is investor knowledge, but it is based on the investor’s self-perception of their knowledge level. Keep that in mind as you read the results of the study. 
Investors with a net worth between $100,000 and $25 million (not including the value of their primary residence) are surveyed in most Spectrem studies, and that wide range of net worth creates odd comparisons. But when those investors are segmented into more manageable net worth ranges, it is easy to see how knowledge tends to create greater investment opportunities for investors.
Among Main Street investors with a net worth between $100,000 and $1 million, those investors who claim to be very knowledgeable about finance and investing claim 42.8 percent of their total assets as investable assets. That percentage drops to 36.9 percent among investors with have very little knowledge about finance, and the difference lies in the percentage each investor has in defined contribution accounts and in their principal residence. In both cases, very knowledgeable investors have a lower percentage of their assets invested in those two safe and standard investment vehicles.
There is also a huge difference in the percentage of assets invested in insurance and annuities, from 5.3 percent of the very knowledgeable investor’s portfolio to 10.6 percent of those investor who are not very knowledgeable. Whether that reflects on the wisdom of investing in annuities is a question for your financial advisor. 
The same pattern holds among Millionaires (those with a net worth between $1 million and $10 million) and Ultra High Net Worth investors (with a net worth between $10 million and $25 million. Among Millionaires, the knowledgeable investors have 59.1 percent of their total assets as investable assets compared to 56.9 percent for the not very knowledgeable investors. Among the wealthiest investors, the difference in percentage of investable assets is more pronounced: 71.3 percent among the most knowledgeable and 66.5 percent among the least knowledgeable.
Spectrem studies show that the more knowledgeable the investor is, the less they depend on financial advisors to make final decisions on investments. The more knowledgeable investors also have a higher percentage of investable assets among their total assets, which gives them more reason to work with an advisor because they have more funds to allocate.
Financial education is considered a good trait to pursue. It appears to benefit both an investor and the advisor because it seems to impact the bottom line in a positive manner.