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In focus - Global Investor Study
Investors forecast returns of 9.9% – millennials expect more
A major global study found investors expect their portfolios to return nearly 10% annually over the next five years.
David Brett
Investment Writer
Investors expect annual returns of 9.9% over the next five years, according to a major new global study.
Regionally, returns expectations were highest in Asia, at 11.8%. In the Americas, investors expected 10.2% and the figure was lowest in Europe at 8.6%.
The returns, based on the average expectation of more than 22,000 investors, include growth in their money as well as any income paid out in the form of dividends and interest from a variety of investments including cash, bonds, property funds and equities. The expectations were tempered slightly from the 2017 study when the forecast was for 10.2% a year.
The findings were part of the Schroders Global Investor Study (GIS) 2018, which measured the views of investors in 30 countries.
Investors' expectations follow a particularly strong spell for equities in particular and echo returns achieved by global stock markets in the past five years. The MSCI World Index, for instance, has returned 12.2% a year since 2013. The historic performance of markets does not offer a guide to future returns.
At a country level, investors in Indonesia on average expect the highest returns, at 16.8% a year. Expectations in other emerging countries were also high, with investors in Brazil, China, Thailand and India all looking for average annual returns in excess of 13% between now and 2023.
US investors expect annual returns of 8.5% over the next five years. In Europe, Russian investors expect the most at 13.0%. However, the region as a whole expects a much lower return, with an expectation of 7.0% in Belgium being the lowest (regionally and worldwide).
A full list of countries and their average expected annual investment returns over the next five years, compared to returns just for stock markets over the last five years can be found below.
We have focused on equities because of the higher risk and potentially higher returns. Doing so underlines the level of optimism among investors, given their expectations are based on a portfolio of mixed investments and savings, which may deliver lower returns. The average investor holds 33% in equities, 18% in bonds, 25% in cash, 12% in property funds and 11% in alternative investments.
Investors' overall return expectations easily exceed even the buoyant stock market returns achieved in most countries over the past five years, as shown here.
Average annual expected five-year returns versus actual MSCI index five-year average annual returns
Country Investors' expected annual returns over next five years (%) Actual stock market annual returns 2013-2018 (%) Difference between expected returns and actual returns (%)
1 Indonesia 16.8 8.5 8.3
2 Thailand 15.5 8.1 7.4
3 Brazil 14.5 9.1 5.4
4 India 13.7 12.9 0.8
5 UAE 13.3 4.8 8.5
6 China 13.1 8.0 5.1
7 Russia 13.0 -0.4 13.4
8 South Africa 12.8 4.4 8.4
9 Chile 12.4 4.4 8.4
10 Taiwan 11.6 10.7 0.9
11 Poland 10.9 11.0 -0.1
12 Portugal 10.1 1.8 8.3
13 Hong Kong 9.3 7.9 1.4
14 Australia 9.2 7.8 1.4
15 Singapore 9.1 12.1 -3.0
16 Spain 9.1 3.8 5.3
17 Japan 8.9 9.9 -1.0
18 Sweden 8.9 9.3 -0.4
19 Denmark 8.8 12.4 -3.6
20 US 8.5 13.1 -4.6
21 Netherlands 8.3 5.4 2.9
22 Austria 8.2 7.1 1.1
23 South Korea 8.1 7.2 0.9
24 UK 8.1 6.8 1.3
25 Canada 7.9 7.3 0.6
26 Germany 7.8 7.0 0.8
27 France 7.6 9.0 -1.4
28 Italy 7.5 5.1 2.4
29 Switzerland 7.4 5.6 1.8
30 Belgium 7.0 7.6 -0.6
Source: Schroders Global Investor Study 2018. Thomson Reuters Datastream data correct as at 3 October 2018. Five-year MSCI Index returns between 01 Oct 2013 and 01 Oct 2018 are based in the local currency.
'Expert' investors expect even higher returns
Investors who judged their level of investment knowledge to be "advanced/expert" expect returns of 10.9% a year, over the next five years.
Investors who consider their level of investment knowledge to be beginner/rudimentary expect a more modest 8.8%. "Intermediate" investors expect 9.7%.
Expected annual returns based on investment knowledge
Americas Asia Europe Global
Advanced/Expert 10.2 13.6 9.8 10.9
Intermediate 10.5 11.6 8.2 9.7
Beginner/Rudimentary 9.6 10.0 7.1 8.8
Average 10.2 11.8 8.6 9.9
Source: Schroders Global Investor Study 2018.
How age affects expectations
Younger generations had bolder expectations for their investments. Millennials, defined in this study as those aged between 18 and 36, believed they would get an annual return of 11.0% over the next five years.
The expectations stepped down with each generation: Generation X (age 37 to 50) expected 10.0%; Baby Boomers (age 51 to 70) expected 8.8%; those aged 71 and over were expecting annual returns of 7.1%.
Claire Walsh, Personal Finance Director at Schroders, said: "The difference in forecasts may, in part, be explained by attitudes to risk. Younger investors tend to have a longer timeframe ahead of them, which means they might have more of their money invested in high-risk, high return assets. In contrast, those nearing retirement or who are already retired, may prefer to hold lower-risk, lower return investments. They are far more sensitive to sudden falls in the value of their investments.
"It should also be noted that many millennials were young when the financial crisis occurred. In the decade since, we've had such a long run of growth it isn't surprising that younger investors are so optimistic about future investment performance."
The study supports this view, highlighting a clear correlation between age and risk. Among investors who identify themselves as "expert/advanced", the trend was very clear. The 18-24 age group hold on average 27% of their portfolio in high-risk investments. This percentage consistently decreases with each subsequent age group, bottoming out at just 20% for 'expert/advanced' investors over 65.
Read more from GIS 2018:
Healthcare, sustainability and disruptive technologies lead the list of investors' favoured super trends
Investors seek 'minimum income' of 10.1%
How much of their portfolio do 'expert/advanced' investors put in high-risk investments?
18-24 25-34 35-44 45-54 55-64 65+
Percentage of portfolio in high-risk investments 27% 26% 25% 22% 21% 20%
What do analysts predict for future returns?
Returns are notoriously difficult to predict but Schroders Multi-Asset investment team forecasts suggest a 5.6% return for global equites over the next 10 years.
Forecasts, of course, should not be relied on for financial planning. In fact, the high return expectations may raise concerns among financial planners. The study also showed that the top reason for saving was to have a comfortable life during retirement. Those plans could unravel if returns are lower than expected.
Income expectations
Investors were also surveyed about their attitude to income. When asked the level of income they would like to achieve, rather than what they expected, the average answer was 10.1%.
This related only to interest and dividends paid out by investments, not increases in value, and excluded cash savings or property. [Read the full story]
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors
Schroders commissioned Research Plus Ltd to conduct, between 20th March and 23rdApril 2018, an independent online study of 22,338 investors in 30 countries around the world, including Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, the UK and the US. This research defines 'investors' 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. These individuals represent the views of investors in each country included in the study.
GIS 2018
03DEC 2018
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