Schroders Global Investor Study: Investors Are Expecting 'staggering And 'unrealistic' Returns

The study, which comprises 25,000 people from more than 32 countries - all of whom will invest at least €10,000 or equivalent over the next 12 months, also found investors expect an average income of 10.3% over the next 12 months.

And yet, almost three-quarters of UK investors said that political uncertainty and volatile markets have impacted their investment decision-making, Schroders found.

Half of UK investor behaviour still influenced by global financial crisis

The report described these expectations for income and capital growth as "unrealistic", and said the fact so many investors expected a 20% annualised return is "staggering".

However, it suggested the widespread recovery of markets following the Global Financial Crisis in 2008 is largely to blame. 

According to Schroders' research, the MSCI World index's average annualised return between 2007 and 2017 was 6.3%, while just one year later - between 2008 and 2018, the index's average annualised return increased to 11.3%.

"This stark difference in returns demonstrates that the post-crash market led to a decade of strong returns.

"This could be one of the reasons for such inflated returns expectations, as investors become complacent about the outlook and expect this trend to continue.

"People are now expecting a 10.7% total return annually, up from 9.9% last year," the report said.

Home bias remains an issue among wealth managers

"Schroders previously explored the outlook for the next decade and believes that a combination of factors will set the scene for a slowing global economy.

"Events like an ageing population, low inflation and poor productivity rates all indicate the next ten years will not match the returns of the previous ten years."

Surprisingly, according to Schroders, investors with greater self-purported market knowledge expected higher annualised total returns over five years than those who deemed themselves to be 'beginner' or 'rudimentary'.

Investors who described themselves as 'expert' or 'advanced' expected an average return of 12.2% per annum, compared to beginners who anticipated returns of 8.3%.

Perhaps in contrast, the report found millennials (those aged between 18 and 37) have the highest average income expectations at 11.7%, followed by generation X (aged 38 to 50) at 10.2%, and baby boomers (aged 51 to 70) at 7.5%.

The silent generation (aged 71 and over), meanwhile, has an average 12-month income expectation of 6.2%.

Expectations versus confidence 

However, these income and total return expectations appear to be at odds with investors' confidence in terms of how much capital they have in their portfolios, the report stated. 

According to Schroders' research, 41% of 'beginner' investors are unsure of how much money they hold, while almost a fifth (18%) of study participants only have a rough idea of how much capital they hold with various financial providers overall. 

And yet, many investors are engaging frequently with their portfolios. Some 77% of investors check their portfolios at least monthly; this stands at 75% in Europe and rises to 80% in Asia. 

In conjunction with this however, the study found investors are "overactive"; it found the average holding period among investors is 2.6 years, which is almost half of the five years that Schroders recommends.