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.

Unrealistic expectations

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 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.

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.