Friday, December 10, 2010

The public does not understand bonds

This is from a Casey Research email:

So, what happens to bond prices if interest rates rise? FINRA (the Financial Industry Regulatory Authority) recently asked that question as part of a random survey of 28,000 folks around the country. They were hoping to get a sense of the average person’s level of financial acumen.

The results are in:

“If interest rates rise, what will typically happen to bond prices?”
  • 18% – They will rise
  • 28% – They will fall
  • 5% – They will stay the same
  • 10% – There is no relationship between bond prices and the interest rate
  • 37% – Don’t know
  • 2% – Prefer not to say

And so, out of the entire sample, only 28% actually understand that rising interest rates are like arsenic tea to bonds.
You can fool some of the people all of the time.
- Abraham Lincoln

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