The new investment landscape

In most countries, high inflation and high interest rates are powerful new influences on the investment landscape not seen since the 1990s. That's a challenge for many people surveyed in the Global Investor Study 2023: with an average age of 43, around half were still in school or not yet born when these two factors last swayed markets.

This is a very different environment from when the Global Investor Study last surveyed people’s thinking in 2022. At that time, some commentators believed the disruption was a blip and predicted a quick return to the benign, low inflation, low rates environment.

We are in a new investment regime and 78% of people recognise this.

Most people have adjusted their overall financial strategy in light of the tougher economic outlook in many countries. Saving more and spending less is the most popular response, selected by 44% of respondents. But with the higher cost of living, many are forced to borrow more. This was deemed a ‘likely’ choice by 41% of those aged 18 to 37.

A new investment landscape demands new thinking. When people can get a good, low-risk return on their savings, buying stocks for a dividend yield looks less attractive. Bond prices tumble. And higher rates generally slow economic growth, which traditionally hits smaller companies hardest because they tend to have more fragile finances. With such changes in the landscape, more than half say they have adapted their strategies.

A sizable minority — more than a third — know they need to react but are unsure how. This is despite having plenty of time to act. Fieldwork for our survey began in May 2023, more than a year after the world’s major central banks began raising rates in the first quarter of 2022.

This inaction is linked to a lack of investment know-how. Among those who rated their knowledge as expert, 16% said they still needed to adapt their strategy. For those who rated their investment knowledge as beginner level, the proportion was more than twice as high at 37%.

Those who rated their knowledge as expert also differed in how they adjust their finances, making them more likely to speak to a financial adviser. Some 46% of those rating their investment knowledge as expert expected to do this, against 36% who rated themselves as beginners. This underlines a key message from the previous Global Investor Study in 2022: those who rate their investment knowledge as expert are more likely to seek financial advice, as their greater experience brings a better understanding of the challenge presented by the current economic conditions.

The investment vehicles that people are either more, or less, attracted to

Another sign that people are turning to expert assistance in changing times is their strengthened belief in the value of active fund management. Opinion is most polarised on cryptocurrencies and digital assets.

In investing, opportunities and risk often come hand-in-hand, and people generally say they are increasing their risk tolerance — especially younger investors.

How do people compare their risk tolerance today with five years ago?

As well as generational differences, there are also nuances in geography. Those in the US are adding risk to their portfolio, with 81% reporting they have increased risk tolerance. This is perhaps linked to economic conditions: inflation in the world's largest economy had dropped from more than 9% in mid-2022 to around 5% at the time of this year’s survey, and unemployment remained low. Perhaps many Americans feel they can afford to chase higher returns.

People in Asia are also increasing their risk tolerance on average, with the proportion saying their risk tolerance is higher than five years ago at 62%. It’s in Europe (including the UK) where people are cautious, particularly in Germany and Italy. Across the region, the proportion saying their risk tolerance is higher than five years ago is less than half at 46%.

Despite the change in the investment landscape, people's expectations for returns have changed little. Asked for their realistic expectations for their return over the next five years, they gave an annual figure of 11.5%, compared with the 11.4% in the Global Investor Study 2022.

This is ambitious: it is substantially higher than the 8.16% annualised return of the MSCI World Index of global stocks between its start at the end of 1987 and August 2022.

Future-gazing over the next few years, however, will be of little value if markets deliver another year as brutal as 2022, when global equity markets, as measured by the MSCI World Index, fell 17.7%.

Outperforming the averages will require astute investment choices, typically identifying the trends that will drive markets up (and down).

How many people think trends will likely increase the value of their portfolio?

The excitement around AI is perhaps linked to a broader interest in technology investment. Tech shares generated very strong returns in the decade before Covid-19 upended markets. These shares also helped power the market gains in the first half of 2023. However, more recently they have been under pressure as it has become clear that rates are staying higher for longer. Despite this, many people remain enthusiastic: internet and tech stocks were the most popular investing theme, with 65% of people saying they have become more attractive over the last six months.

Real estate remained a strong choice for many investors, ranked second among thematic investments. The next most popular investment themes were electric vehicles and sustainability. The following sections of this report go into more detail on attitudes towards sustainability and investing in private assets such as real estate.

Despite the rollercoaster ride of the last few years, investors remain upbeat — especially those with more knowledge.