A check-up of the financial health of our citizens reveals some good news and some bad news. First, the good news. Wall Street is in the midst of a historic bull market and more Americans than ever-41% percent of families, according to a recent survey-are invested in stocks, either through direct ownership of shares, or through mutual funds or IRAs, 401(k)s and other retirement accounts. In recent years the stock market has chalked up annual returns of 20% and more, to the benefit of many of our citizens.
|by J. Joseph Curran, Jr.|
State of Maryland
The bad news: millions of Americans have no idea what they need to do to save for retirement, and a number of polls and studies suggest that the majority of Americans are "financially illiterate."
The statistics are sobering. Last year the U.S. savings rate was 3.8 percent, the lowest in 58 years. Three out of four Americans don't have any idea how much they need to save for retirement. While 63 percent of Americans know the difference between a football halfback and a quarterback. only 14 percent know the difference between an income stock and a growth stock.
Just as disturbing, millions of Americans have expectations about the stock market that are totally out of line with historic averages. Last fall a survey by a major West Coast brokerage firm found that investors expected their portfolios to produce average returns of 34% annually over the next ten years. At a time when Americans are increasingly responsible for their own financial futures, all this spells trouble.
The answer is investor education. Not surprisingly, investor education is an issue that unites regulators, consumer advocates and the securities industry. Investors need to get the facts, know their rights and watch out for fraud.
Uninformed, unsophisticated investors make tempting targets for crooks. I speak from experience-our Securities Division, the top securities regulator in Maryland, sees this all the time.
The fundamentals could be in place for a long-term bull market in fraud. These fundamentals include record numbers of Americans investing in the equity markets, many with unrealistic expectations; baby boomers worried about having enough money for retirement; and older Americans trying to live on fixed incomes in an era of low interest rates.
Another development that has fundamentally changed everything is the Internet. While the Internet is a great tool for investors-bringing Wall Street- quality information to investors on Main Street-it's increasingly being used by ever-more-sophisticated con artists.
State regulators license investment professionals, examine firms, and review securities offerings. We also help put crooks in jail. While we work hard, there are limits to what we can do.
Investors themselves are the true first line of defense against crooks. Investors need to be well armed with knowledge and a healthy skepticism. Wall Street is no short cut to Easy Street. Success takes persistence, patience and practice. In fact, Wall Street can be a mean street for those who aren't careful with their money.
There are, however, a few simple steps you can take to protect yourself.
One: Get the facts: always, always check up on your investment professional and their firm by calling the Securities Division to see if they're licensed in Maryland and if they have any disciplinary record. Call the Securities Division at 410-576-6360.
Two: Hang up on aggressive telemarketers and cold-callers. Never allow yourself to be pressured into making an investment over the phone.
Three: If you have problems, first write your broker, his or her supervisor and the compliance officer at the firm. Forward a copy of your complaint to the Securities Division at 200 St. Paul Place, Baltimore, Maryland 21202.
We are working with other states on a million-dollar national program called "Financial Literacy 2001." Our goal is to assure that investment fundamentals are taught to every high school senior in the nation. We already teach phys-ed, sex-ed and driver's ed-it's time we teach investor ed. The young people of today are the investors of tomorrow and they have to learn how to manage and protect their money.
Contact the Securities Division by mail at 200 St. Paul Place, Baltimore, MD 21202-2020, by phone at 410-576-6398, or by e-mail at email@example.com.