Investment outcomes – unrealistic expectations
Investment outcomes – unrealistic expectations
The Schroders Global Investor Study 2016 paints a picture of a world in which investment expectations are stuck in a bygone era. This should be a concern for everyone involved in long-term financial planning.
Schroders Global Investor Study: investment outcomes – key findings:
- Investors demand an average income of 9.1% compared with an average equity yield of 3.8%1
- Investors on average hold investments for 3.2 years, far less than the five-plus years asset managers recommend
- Investors are reluctant to take risk to achieve their desired income
- Investors are realistic about how long they can expect to live in retirement: 21.2 years
With interest rates around the globe stuck below 1%, achieving an annual return of 8% or 9% is a near impossibility without taking on significant levels of risk.
And, with capital preservation a top priority and a worryingly short-term outlook for holding investments, achieving that level of income in the current economic climate looks unlikely.
Painful process of adjustment
Until relatively recently, there had been a sense the exceptionally loose monetary policy adopted in response to the global financial crisis was a temporary phenomenon.
Sooner or later, according to the consensus, economic growth would pick up, interest rates would rise and some form of normality – in the sense, at least, of a pre-crisis policy environment – would return.
Eight years on though, such hopes appear increasingly forlorn.
Interest rates may have been tentatively raised in the US but, with inflation still very low around the world, few countries seem in any hurry to follow the Federal Reserve’s lead. Indeed, Japanese and eurozone policymakers remain firmly in easing mode.
If this is the new reality, then a significant number of investors have a painful process of adjustment ahead of them.
Our findings suggest many investors expect too much in terms of investment income and do not realise how much they need to save or for how long.
At the same time, with average holding periods still relatively short, the mantra that equity investing should ideally be a long-term undertaking is going largely unheeded.
All this represents a challenge for investment management firms, which must attempt the awkward balancing act of readjusting investor expectations while still convincing them of the benefits of long-term saving and investment.
For the full story and interactive infographic visit www.schroders.com/gis or download the full report below.
1. Source: FTSE, S&P 500, CAC, DAX, Shanghai, Nikkei, ASX, Hang Seng, Bovespa, Mexbol. Average forward 12-month yield across 11 indexes as at 18 May, 2016, according to Bloomberg data.↩
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.