Global Investor Study

Investors seek ‘minimum income’ of 10.1%

Schroders’ Global Investor Study reveals the latest expectations of investors and offers a snapshot of the investments they hold to reach their goals

03/12/2018

David Brett

David Brett

Investment Writer

Investors hope to achieve an average minimum income of 10.1% from their investments, a major new global study has found.

The figure, which represents income from dividends and interest payments on investments, marks an increase from 9.1% two years ago. It is also substantially higher than the income available on typical portfolios.

The Schroders Global Investor Study (GIS) 2018 covered a range of issues, revealing the assets held by investors and the hopes and expectations for what they might achieve. It canvassed the views of more than 22,000 investors in 30 countries around the world.

Regionally, the average income investors would like to receive was highest in the Americas at 11.5%, ahead of Asia at 10.9% and 9.0% in Europe.

Investment income can help fund lifestyles, be it when working or retired. Unrealistic expectations could derail such plans.

Desired income levels look optimistic. The current level of income available on world equities, according to the MSCI World Index, is 2.4%.

Rupert Rucker, Head of Income at Schroders, said: “The gap between the income people would like to receive and what they could actually achieve today is stark, and frankly, it’s worrying.

“People have high hopes for their savings; they plan for the future and hope their investments will grow to make those plans become a reality. But if their income estimates are too wide of the mark, those plans can rapidly unravel.”

Read more:

Typical portfolios: how investors plan to achieve high income

In the study, investors revealed the type of assets they hold. The average portfolio was found to have invested 33.2% in stock markets (equities), 18.4% in bonds, 12.0% in property and 11.1% in alternative investments, such as commodities. In addition, the typical investor has more than a quarter of their portfolio (25.3%) kept in cash.

A large holding in cash could reduce the income that a portfolio can produce because interest rates are so low, but it is less risky than other investments such as equities.

To investigate further, we examined expectations in the US compared to the income that a typical portfolio might generate.

The average American invests 35% of their portfolio in equities, 20% in bonds, 20% in cash, 12% in property funds and 12% in alternative investments.

Analysis by the Schroders Income capability found that this portfolio would yield 2.9% today, with the breakdown shown in the second chart, below. This suggests a huge disparity between income expectation and the yields available today.

Type of investment Income yield Proportion Income contribution
Stock markets (equities) 2.4% 35.0% 0.84%
Bonds 2.6% 20.4% 0.53%
Cash 2.1% 20.0% 0.42%
Property funds 4.2% 12.2% 0.51%
Alternatives 4.9% 12.4% 0.61%
TOTAL     2.91%

The figures shown are for illustrative purposes and the income shown is not guaranteed. Investments can fall and rise and you may get back less than you invested. Data correct as at 2018.

Please remember that past performance is not a guide to future performance and may not be repeated.

Sources: Thomson Reuters. Equities is based on the MSCI All-Country World Index; Bonds are represented by the Bloomberg Barclays Global Aggregate Index; Cash is represented by the US Treasury three-month yield; Property is represented by the FTSE NAREIT US; Alternatives is based on a typical alternatives income portfolio, including infrastructure and insurance bonds.

Schroders’ Rucker said: “Interest rates may be rising in many countries, most notably in the US, but a return to rates of 5%-plus in developed markets looks unlikely in the near future.  

“In that scenario, investors, in particular, will struggle to achieve the income they need, although this will depend on personal circumstances. As a rule, to achieve greater income, you may need to take greater risk. Investors might want to consider how much additional risk they are willing to take to achieve what they want.”

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Views on income varied across different age groups. Generation X (aged 37 to 50) matched the global average, 10.2%. Millennials were most ambitious, saying they would like income of 11.3%. In contrast, Baby Boomers would like 8.7% and those aged over 71 only wanted 7.2%.

How income expectations vary by country

Geography and local economic factors may influence the level of income investors expect to receive.

Income expectations are commonly highest in countries where the cost of living (inflation) is higher, such as Brazil (4.2% inflation) and South Africa (5.1% inflation).

Higher inflation tends to result in higher interest rates and with it, higher returns on savings and investments, although that is not always the case.

However, even in countries with high inflation, investors’ expectations far exceed the income they can expect to receive from their national stock market.

Country income expectations, inflation rates and stock market yields are listed below. 

 Country Income expectations  Inflation rate  Stock market yield 
 India  13.5% 3.7% 1.2% 
 Indonesia  13.3% 3.2%  2.6% 
 Chile  13.0% 2.6%  2.7% 
Thailand   12.9% 1.6%  2.9% 
Brazil   12.7% 4.2% 3.8% 
UAE   12.6% 3.8%  5.2% 
South Africa   12.4% 5.1%  2.8% 
Russia   12.2%  3.1%  5.5% 
US   12.0% 2.9%  1.8% 
Poland   10.9% 2.2%  1.9% 
China   10.6% 0.5%  2.1% 
South Korea   10.6% 1.4%  2.1% 
Taiwan   10.5% 1.5%  3.9% 
Portugal   10.0% 1.3%  4.4% 
Hong Kong   9.9% 2.4%  2.9% 
Spain   9.7% 2.2%  4.3% 
Australia   9.6% 2.1%  4.2% 
Singapore   9.2% 0.6%  4.2% 
Canada   9.0% 3.0%  3.0% 
Denmark   8.9% 1.0%  2.2% 
France   8.9% 2.3%  3.1% 
Sweden   8.9% 2.1%  3.7% 
 UK  8.6% 2.5%  4.3% 
Netherlands   8.6% 2.3%  2.7% 
Italy   8.5% 1.7%  4.2% 
Germany   8.2% 2.0%  2.9% 
Japan   8.1% 1.0%  2.2% 
Switzerland   7.9% 1.2%  3.2% 
Austria   7.8% 2.1% 3.3% 
Belgium   7.6% 2.2%  3.9% 

Source: Schroders Global Investor Study 2018; Stock market dividend income yield – 31 August 2018

The Global Investor Study also asked the primary reason for investing. The most common answer was that it was to ensure a financially comfortable life in retirement.

Rucker said: “It’s difficult to work out how much money you need to accrue to ensure a decent standard of living in retirement. It’s just as hard to work out what level of income you might expect at some point in the future. What this study shows is that expectations today are way out of kilter with reality. We’d strongly urge people to spend more time researching what they can realistically expect their portfolio to achieve. The answer to that question will affect how much they need to put away and where that money should be invested.”

Investors are should seek help from a financial adviser when taking investment decisions and planning for their future.

Important Information:

Schroders commissioned Research Plus Ltd to conduct, between 20th March and 23rdApril 2018, an independent online study of 22,338 investors in 30 countries around the world, including Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, the UK and the US. This research defines ‘investors’ as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last ten years. These individuals represent the views of investors in each country included in the study.

Important Information:
Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article. They do not necessarily reflect the opinions of Schroder Investment Management Australia Limited, ABN 22 000 443 274, AFS Licence 226473 ("Schroders") or any member of the Schroders Group and are subject to change without notice. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this article. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this article or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this article or any other person. This document does not contain, and should not be relied on as containing any investment, accounting, legal or tax advice. Schroders may record and monitor telephone calls for security, training and compliance purposes.