Financial Literacy and portfolio diversification: Evidence from Vietnam

This study investigates the relationship between the level of financial knowledge and portfolio diversification in Vietnam, an emerging financial market in Asia. To achieve this objective, we conducted an online survey of 343 investors actively participating in Vietnam's financial markets in 2020. The survey's primary goal was to assess both basic and advanced knowledge levels among investors in the field of finance, as well as their foundational grasp of economics. To gauge the extent of portfolio diversification among these investors, we included questions pertaining to the number of stocks and financial assets comprising their portfolios. The results of ordinary least squares and Probit regressions reveal a significant correlation between investors' financial knowledge and the extent of their portfolio diversification in Vietnam. Notably, comprehension of concepts such as the time value of money within digital currencies, financial assets, and risk measurement emerges as a pivotal factor influencing portfolio diversification levels. However, there is no significant relationship found between knowledge of economics and portfolio diversification. Furthermore, investors' personal circumstances, including their job positions and income, can also exert an influence on the degree of portfolio diversification they undertake. These findings underscore the importance of enhancing investors' understanding of financial products, as doing so can bolster competitiveness and serve as an effective means of enhancing the efficiency of Vietnam's financial markets. In light of these results, investors and policymakers should consider implementing measures aimed at adapting to market requirements, thereby fostering sustainable development.