What's With All the $10 Words?

Simplicity and clarity. That's what Warren Buffett aims for when he pens his annual letter to shareholders. Unfortunately, that's not what you'll find in much of the financial world -- especially when you're looking for a mutual fund. And that's hurting many investors and would-be investors.

The folks at AARP Financial recently released the results of a study looking at the impact of financial jargon on investor behavior and decision-making. They found:

What's so confusing? Well, many people just don't know what a mutual fund's "expense ratio" is. Wouldn't it be simpler to call it an "annual fee"? Or how about "basis points"? Why not just call them what they are -- hundredths of a percent? Similarly, "equities" are stocks, and "fixed-income securities" are usually bonds.

What to do
Financial literacy is critical if we want to succeed with our money. That's why we at the Fool have dedicated ourselves to promoting financial literacy through our Foolanthropy efforts. That's also why we aim to be simple and clear in our own writing, and in the investing newsletter services we issue.

When you invest, look for clear communications from your investments. CEOs should be candid and understandable in their annual letters to shareholders. Toyota (NYSE: TM), Alcoa (NYSE: AA), Walgreen (NYSE: WAG), UPS (NYSE: UPS), and Sherwin-Williams (NYSE: SHW) have won top marks for CEO candor in recent years, while Boeing (NYSE: BA) and Cigna (NYSE: CI) have fared poorly. Mutual fund prospectuses and managers' reports should be very comprehensible, too.

One way to help yourself wade through financial documents is to bite the bullet and learn more about investing. The more you know, the better you'll be able to deal with jargon.