What is a fiduciary?
Just 42 percent of respondents correctly identified the definition of a fiduciary, Betterment reports. Furthermore, 20 percent of survey respondents believed that "fiduciary" and "financial advisor" were synonymous, and 27 percent didn't know what a fiduciary was at all.
A fiduciary is has a legal duty to act in your best interest. Those not working to the fiduciary standard are held only to a suitability standard, meaning their advice must be suitable for your financial situation.
"Fiduciary" and "financial advisor" are far from synonymous. As professor Harold Pollack and financial journalist Helaine Olen explain in their book, "The Index Card," "a financial advisor working to the fiduciary standard has a legal duty to act in your best interest and is not getting paid to steer you into buying overpriced investment products you don't want or need."
If you were able to set aside $50 each month for retirement, how much would that end up becoming 25 years from now, including interest, if it grew at the historical stock market average?
- About $15,000
- About $30,000
- About $40,000
- About $60,000
- More than $60,000
The correct answer is 3: about $40,000, assuming a 7 percent rate of return. Only 16 percent of the 2,000 respondents answered correctly on this retirement IQ test by Fidelity Investments.
While knowing basic facts about money will help you figure out how best to save, invest and spend your money, not understanding the larger concepts could put you at risk. When you understand why you're investing a certain way, you can make educated decisions about when to invest more, when to withdraw funds and the best way to build wealth.
The best way to improve your financial literacy is to do your homework. Read up on saving and investing. Check out this guide on everything you need to know about 401(k)s, IRAs and other retirement savings accounts.
Books are also an invaluable resource, as well as an affordable one. Self-made millionaires agree that "Your Money or Your Life," by Vicki Robin and Joe Dominguez is a must-read for anyone trying to build wealth. You can also check out this list of personal finance classics summed up in a single sentence and this compilation of the favorite books of billionaires.
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