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Schroders Global Investor Study 2018: ‘Expert’ investors embracing higher levels of risk

03/12/2018

‘Expert’ investors globally are investing a quarter of their portfolios in high-risk investments and placing less emphasis on cash compared with ‘beginners’, Schroders Global Investor Study 2018* has identified.

Investors who classify themselves as ‘advanced/expert’ are embracing greater levels of risk, with an average of 24% of their portfolios allocated to high-risk assets.

In contrast, ‘beginner/rudimentary’ investors are putting 14% of their savings in high-risk portfolios, indicating that experienced investors have more confidence in benefitting from added risk.

Advanced investors in Asia were the most high-octane, allocating 26% towards more risky investments, compared to their more cautious European counterparts who invest 23% in these assets. 

In terms of demographics, the survey’s youngest investors – those aged 18-24 – invested the most in high-risk products, with 27% of their portfolios allocated in this way.

On the other hand, savers aged 65+ were discernibly more cautious with 20% of their investments in high-risk assets, arguably a more prudent approach given their investment profiles. 

Expert investors are also holding 33% less cash than beginners. In total, they are allocating 21% of their portfolios to cash, compared with 32% for investors with less knowledge. Instead, expert investors have more exposure to equities (34%), bonds (19%), property (13%) and alternatives (12%). Overall, more than a third (34%) of expert investors believe their portfolios are very well diversified, compared to just 9% of beginners.

Asian investors of all levels of investment knowledge had the highest average allocations to cash, with 29% of their portfolios invested in these assets. Conversely, investors in the Americas had the smallest exposures with an average of 20% of their investments in cash. 

Experienced investors are also more likely to react more swiftly following stockmarket falls, responding to drops by boosting their allocations to equities, bonds, property and cash. In contrast, the survey found that 58% of investors with less knowledge do nothing when markets fall, with 17% of beginner investors admitting they do not pay attention to markets.

The three biggest investment themes** for investors globally were healthcare, sustainability and disruptive technologies. Three-quarters of ‘expert’ investors aged 25-34 – the demographic which largely makes up the ‘Millennial’ generation - are interested in investing in thematic funds, with appetite markedly waning for ‘expert’ investors aged 65+.

‘Millennials’ were also most interested in sustainability as an investment theme.

Rupert Rucker, Head of Income Solutions, Schroders, said:

“As a rule, to achieve greater income, you may need to take greater risk and it is interesting to see that investors who classify themselves as advanced or expert are more likely to take on more.

“However, we think investors will need to remain invested for longer than they are used to. It is one way that short-term declines in capital values can be restored and income earned.

“Either way, investors of all skill-sets might want to consider how much additional risk they are willing to take to achieve what they want, while assessing their personal circumstances and individual risk appetite.

 “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.”  

For the Schroders Global Investor Study 2018 full report How do the ‘experts’ make investment decisions please visit www.schroders.com/gis

The first section of Schroders Global Investor Study, released in July, found that people globally were significantly underestimating the cost of living in retirement. It can be found here.

The second, released in September, found that only a quarter of people globally are concerned that investing sustainably would hinder investment outcomes. This can be read here.

* In April 2018, Schroders commissioned Research Plus Ltd to conduct an independent online survey of over 22,000 people who invest from 30 countries around the globe. The countries included Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, the UK and the US. This research defines “people” 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

** An investment focus on companies active in particular areas