Investors remain far more optimistic about long-term investment returns post-Covid, than financial professionals according to a research by Natixis Investment Managers.
In a Europe-wide survey, investors with more than $100,000 of assets said they expected to achieve annual returns of 13 per cent above inflation in 2021, and returns of 14.5 per cent above inflation over the longer term.
This is significantly above the 5.3 per cent long-term returns that financial professionals cited as being “realistic”.
In the UK this ‘expectation’ gap is even wider, with investors anticipating long-term returns 14.1 per cent above inflation, compared to the financial professional prediction of just 4.6 per cent.
Natixis points out that many investors’ expectations may have been raised by the double-digit returns earned in 2020, despite the global pandemic.
In order to pursue higher returns, more than half of European investors (53 per cent) say they are more willing to take on risk. However, three-quarters (76 per cent) of investors say they also prefer safety over investment performance, with more than half (52 per cent) believing volatility undermines their savings and investment goals.
This may explain why, despite the potential opportunities, volatility ranks as one of the top risk concerns (32 per cent), alongside a slow economic recovery (36 per cent) and low interest rates (31 per cent).
For UK investors, low interest rates are far more of a concern, with 53 per cent highlighting it as one of their top three concerns. The long-term impact of the high public spending is also weighing on investors, as a quarter (23 per cent) of those surveyed highlight potential tax increases as a looming risk.
Andrew Benton, head of northern Europe at Natixis Investment Managers says: “While investors have great expectations for the post-Covid investment landscape, our survey shows a persistent desire for safety over investment performance, and fundamental concerns about volatility could test investors mettle if faced with any market turbulence.”
A total of just 11 per cent of European investors surveyed said they experienced a significant setback to their financial security during the pandemic – the lowest number of any region. Natixis says this was due to a combination of swift action by policy makers, high average investment returns, combined with higher income levels among the respondent pool.
Given the high levels of returns investors achieved in 2020, 50 per cent of those surveyed globally had made no changes in their investment accounts as a result of Covid-19.
Millennials were the most likely group to make adjustment, with 74 per cent surveyed making some changes to their investment accounts. This demographic was more likely to increase their investments as a result of the pandemic (23 per cent vs. 19 per cent overall), but they were also the group most likely to make withdrawals from savings and investment accounts (24 per cent vs. 19 per cent). Natixis says this number aligns with the 28 per cent who said they lost household income and 12 per cent who lost their job or business for at least part of the year as a result of Covid-19.
Benton adds: “The pandemic has been a stress test as much on personal finances as the global economy. Investors have an appreciation for the invaluable lessons from the Covid-19 pandemic and coming out of the pandemic and into recovery, they clearly see opportunities to invest for growth. However, going forward, investors need to carefully consider the results they can realistically hope to achieve and rationalize those expectations with genuine tolerance for risk.”
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