Australian investors are out of touch with their expectations for investment returns according to the latest Schroders Global Investment Study.
Australian investors expect an annual return of 10.9 per cent a year over the next five years despite the low interest, low growth environment.
Graeme Mather, Schroders’ head of distribution in Australia says: “It is clear that investors still have high return expectations that are not in line with the reality of investment markets.”
One in seven Australians surveyed expect an annual return of 20 per cent, which is slightly less than one in six global investors that expect the same return.
Mather says: “It’s a challenging market and it’s difficult for any asset class to achieve double digit returns.”
Chris Durack, chief executive of Schroders Australia agrees: “If you look at 100 years of data from the stock markets around the world, the Aussie stock market produces a real return between 6 and 7 per cent. That’s if you invest 100 per cent in the stock market over the last century.”
Australian Millennials had higher return expectations at 12.9 per cent compared with Generation X at 10.8 per cent, Baby Boomers at 9.2 per cent and investors aged over 71 at 7.7 per cent.
Mather considers the reason for Millennials’ high expectations is that they have only seen positive market returns since the global financial crisis over 10 years ago.
Mather says: “I guess their expectations are based on complacency and the last 10 years of positive market returns.”
The recent changes in the financial advice industry have resulted in thousands of advisers leaving the industry and investor expectations may become even more far-fetched.
Because of the unrealistic expectations, investors are found to make immediate changes to their portfolios during times of market volatility.
During the December quarter last year, only 23 per cent of Australian investors surveyed kept their investments the same and 40 per cent of Australians invested in riskier assets when the market fell.
Durack says: “If you’re inclined to think that equities are a risky investment, the average return that you get for a risky investment over a long period of time is less than what people are expecting in the Global Investor Survey.”
Mather says: “It is clear that more education is needed to ensure investors don’t change asset allocations, and chase market movements at precisely a time they should not.”
Schroders research is based on a survey of 25,000 investors from 32 locations
around the world. The research defines investors as those with at least the
equivalent of €10,000 to invest in the next year and who have made changes to
their investments within the last 10 years.