Global Investor Study
Global Investor Study: mind the gap
Could US consumers’ unrealistically high income demands and short-term investment approach be setting them on a collision course with their investment advisers?
Retail investors around the globe have unrealistic expectations over how much income an investment will return and how long they can hold investments in order to receive their desired return.
Gap in expectations
But in the US there is a large disconnect between what consumers expect and the more realistic expectations of their advisers.
The local results from the US of the Schroders Global Investor Study 2016 found:
- US advisers recommend staying in an investment for five years
- US consumers, on average, hold onto investments for just three years
- US advisors seek 5% income growth in their portfolios
- US consumers demand 11% income growth in their portfolios.
To put these income demands into perspective, many developed nations interest rates are tethered well below 1% and are struggling to go higher.
Meanwhile, the study also found that two of the main reasons US consumers invested were:
- To supplement pension/annuity
- To supplement salary/income.
It is a potentially toxic mix. In trying to achieve a high level of income to meet both their short- and long-term income requirements, investors risk perpetuating the boom and bust nature of markets that we have seen since 2008.
Risking it all on “the cycle”
By holding investments over such a short-time period consumers are risking capital and income prospects by trying to time the bottom and top of markets.
The reason advisers suggest holding assets for more than a five-year period is so that the market can go through its natural cycle.
But consumers are demanding to have their cake and eat it too. They need income both in the short and long-term, which means they are always chasing income.
If this gap between consumer demands and their adviser expectations isn’t closed the end result could see investors fall drastically short of their long and short-term investment goals.
The views and opinions contained herein are those of Schroders' investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.'s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.