Investment Literacy and ‘Disclosure Documents’

A survey conducted by the SEC has shown that many investors fail to read disclosure documents, and of those that do read these documents, they spend very little time reviewing them considering the amount of information they contain. Further, the overall satisfaction investors found with disclosure documents was generally mixed.

The top complaint among investors who participated in the survey was that the disclosure documents contain far too much legal jargon, and they consider the documents to be too long and wordy, or complicated and difficult to understand. Ultimately leading investors to rely on someone else to review the documents - typically the investors’ financial advisor or broker. The only positive response investors had regarding the disclosure documents was that they tended to approve of the overall organization of the documents, however, this doesn’t vastly improve the ability to read and comprehend the complicated legal jargon contained in the disclosures.

After reviewing the results of this survey, it should be clear to the SEC that investment literacy is one of the most crucial skills needed by investors to understand the effect and meaning of the disclosure documents. Not only is investment literacy required to understand the basics of the disclosure documents, but absolutely necessary in order to comprehend how they currently exist, as well as the way in which they can be improved. Investors who have lower levels of investment literacy typically spent more time on trying to read the disclosure documents, were more likely to struggle finding necessary information, and failed to understand the language in disclosure documents, despite reporting higher levels of satisfaction with them.

The takeaway should be this: Investigate before you Invest!