Global Investor Study
Investors expect returns of 10.2% with millennials hoping for more
Investors expect an annual return of 10.2% on their investments over the next five years, according to a major new study.
The Schroders Global Investor Study (GIS) 2017, which surveyed 22,100 people from around the globe who invest, found millennials even more optimistic. Those born between 1982 and 1999 expected their money to make average returns of 11.7% a year between now and 2022.
Older generations were more realistic. The Baby Boomer generation – born in the two decades after the Second World War – anticipated 8.6% a year.
Millennials (born 1982-1999, aged 18-35): 11.7% Generation X (born 1965-1981, aged 36-52): 9.8% Baby Boomers (born 1945-1964, aged 53-72): 8.6% Silent Generation (born 1923-1944, aged 73+): 8.1%
The expectations expressed were for a broad portfolio of investments. For equities, the most widely held asset in a portfolio, historic performance has been lower than current expectations.
The MSCI World index, which measures the performance of global stockmarkets, achieved annual returns of 7.2% between 1987 and 2017, with all income reinvested.
- See the full results from the Schroders Global Investor Study 2017
Returns in the next few years could be modest. The Schroders Economics Group has forecast a 4.2% annual return for world equities over the next seven years, or 2.1% a year after inflation is taken into account.
Keith Wade, Chief Economist at Schroders, said: “Returns expectations are simply too high. It means that many will face a shortfall when they come to realise their investments in the future as they have relied too heavily on returns to meet their objectives.
“In the current environment, where returns are likely to be lower than in the past, the only way to bridge the gap is to save more.”
The Schroders Institutional Investor Study, a separate project, also measured very different expectations for professional investors around the globe who expect annual returns of just over 5% in the next five years.
The Global Investor Study found geographical differences in expectations among consumers. Asia and the Americas were home to the most optimistic investors with both expecting average returns of 11.7% a year. In contrast, the average European investor expects 8.7% a year.
Investors in the Americas were particularly bullish, with 20% of respondents expecting annual returns of more than 20%. Only 8% of Europeans expected returns to be so high.
Average annual return expectations on total investment portfolio over the next five years
The highest expectations by country were recorded in Indonesia, where the average investor typically anticipated returns of 17.1% a year. Thailand and Brazil were close behind, expecting 15.2% a year, on average.
In Indonesia, 39% of investors expected returns of more than 20% a year.
Some emerging markets have experienced bouts of high interest rates and elevated inflation, which eats into returns. This may have increased expectations for returns in some of those countries.
However, anticipated returns were also high in Japan, which has endured decades of exceptionally low inflation and periods of deflation. Investors may now believe that measures to kick-start economic growth may be about to pay off.
Expectations were lowest in Europe. Italian investors only expected returns of 7.1% a year, the lowest figure for any country.
What the average investment return expectation is in your country
Equities are considered to be higher risk investments given how prices can fluctuate. Riskier investments tend to offer the potential of higher returns. However, the 2017 Global Investor Study also found that investors are currently averse to taking too much risk due to the uncertainty caused by international events.
59% do not want to take on as much risk in their investments now. 48% have more money in cash, the least risky of all investments, than they used to.
The amount people are keeping in cash is perhaps a surprise giving the cost of living outpaces the interest paid in bank accounts in most countries.
The Schroders Global Investor Study, which surveyed people planning to invest at least €10,000 (or the local currency equivalent) in the next 12 months and who have made changes to their investments within the last 10 years, covers a whole range of investor attitudes and expectations which can be found at schroders.com/gis
It sits alongside Schroders InvestIQ, a new test that aims to improve the abilities of investors.
What is the investIQ test?
Do you make decisions based on logic and reason? The truth is our mind plays tricks on us more often than we realise. It makes us believe we’re thinking analytically, when we may be acting instinctively. So what feels like an informed decision, is actually clouded by behavioural biases.
The same thing happens when we’re making important choices – like how to invest our money.
At the heart of investIQ is a short test developed by behavioural scientists that helps you understand your investment personality. In less than 8 minutes, you’ll get a detailed report outlining which behavioural traits influence you the most, and how best to deal with them.
Take the investIQ test in less than eight minutes. Go to Schroders.com/investIQ
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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.