Understanding investment concepts a barrier

investment concepts housing risk return

30 June 2016
| By Malavika |
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More Australians are discussing their household finances with a financial professional while there has also been a significant reduction in the number of people saying they prefer not to discuss their finances with anyone, according to research.

The Australian Securities and Investments Commission's (ASIC) Australian Financial Attitudes and Behaviour Tracker showed 20 per cent of those surveyed between September 2015 and February 2016 approached a financial professional, compared to 16 per cent in previous research.

Only 15 per cent said they preferred not to speak to anyone, compared to 18 per cent in previous research.

However, only 33 per cent of respondents demonstrated an understanding of the concept of the risk/return trade-off. Of these, 93 per cent were able to accurately describe the concept when tested.

In comparison, two in five respondents said they had heard of and understood the concept of diversification but there was a noteworthy decline in the proportion of respondents that was able to properly describe the concept when tested (88 per cent, compared to 94 per cent in previous research).

Males (42 per cent) were more likely to understand the risk/return trade-off concept than females (23 per cent), while those 35 years and over (37 per cent) were more likely to have an understanding than those under 35 (23 per cent).

The survey of 1,363 people also showed usage of short-term (three to five years) financial plans had increased from 38 per cent in the first round of research (wave 1) to 45 per cent in the current round of research (wave 4).

However, the use of long-term plans (15-20 years) remained steady at 25 per cent, with households with children more likely to have a long-term plan (31 per cent), while males (70 per cent) were more likely than females (57 per cent) to have a long-term plan.

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