How unrealistic expectations can damage your returns

We have written regularly about the effects of allowing our feelings, thoughts and emotions to cloud our financial decision making. Yet even when we take steps to understand our individual investor personalities, it is also important to manage our expectations of how our investments will perform.

According to the results of Schroders Global Investor Study, which measured the view of more than 25,000 investors in 32 locations, individual investors are expecting an average of 10.7% annual total returns. This is in stark comparison to Schroder’s forecast, which stand at 5.7% average annual returns for world equity markets over the next decade.

Why such disparity?

Experts believe that many individual investors are planning their future financial lives based on certain (mis)beliefs about how markets will perform. With global equity and bond prices having risen for the last decade, some investors could be relying on past performance as a guide to the future – something that all financial planning firms advise strongly against.

Moreover, many of today’s younger investors began investing after the financial crisis of 2007-2008, meaning they have only ever experienced most global stocks rising. And despite the Schroder’s forecasts sitting below 6%, individual investors expectations have risen in the past year, from 9.9% to 10.7%.

As a result of these unrealistic beliefs, some investors are putting too little into their retirement savings plans as well as allowing their overconfidence to impact their view on the amount of risk they should take.

Nathan Mead-Wellings, Director at Finura, comments: “We have always tried to encourage our clients to take a long-term view on their investments, and that includes setting realistic benchmarks and using our expertise to help them achieve those goals. However, research such as this only serves to reiterate the importance of educating and improving clients’ understanding of the investment process and market cycle; at Finura we collaborate and share knowledge with our clients to empower them to make better financial decisions based on analysis rather than instinct.”

The table below highlights just how over-ambitious the 10.7% average expected returns may prove to be, with even the best-performing asset class (emerging market equities) included in the research coming in below investor expectations.

Schroders return forecasts for the next ten years (against previous forecast) in local currency terms

Asset Type Market Previous Forecast Annual Return %
Forecast Annual Return %
Cash US 0.7 0.9
EUR 0.2 0.4
UK 0.7 1.1
JP -0.1 -0.1
Government Bonds US 1.9 2.7
EUR 0.2 0.9
UK 0.8 1.2
JP -0.2 -0.1
EM Local 5.7 6.5
Inflation-linked Bonds US 1.5 2.2
UK 0.7 1.1
Investment Grade Binds US 2.9 3.9
EUR 1.1 2.1
UK 1.7 2.4
High Yield Bonds US 4.3 5.7
EMD 4.1 5.1
Equity Global 5.7 6.7
US 6.0 7.0
EUR 4.1 5.1
UK 3.9 4.6
JP 3.0 3.4
EM 9.0 10.0
Alternatives Commodities 0.9 0.9
Private Equity 7.2 7.5
Hedge Funds 3.9 4.0

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. The forecasts are based on Schroder’s own assumptions which may change. They accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to their assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.


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