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Many Investors Expecting Double-Digit Returns Prefer Lower-Risk Investments

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Individual savers are feeling increasingly confident and want to invest more, but many have an unrealistic view on how their assets will perform in a market challenged by uncertainty and desynchronized monetary policies, according to the Schroders Global Investment Trends Survey, released Wednesday.

The study found that 57% of U.S. retail investors felt more confident about investment opportunities in the next 12 months than they did a year ago.

Eighty-eight percent of U.S. investors expected their investments to grow in the coming year, producing an average annual return of 10%. However, investors wanted most of their portfolio in lower risk, lower return assets like bonds and cash.

The vast majority of investors planned to increase or maintain the amount they saved or invested in the next 12 months, with 56% intending to invest more this year than in 2014.

On average, investors planned to increase the amount of savings or investments by 12% over the next year. Overall, 83% of U.S. investors were looking to generate income from their investments.

Research Plus Ltd. conducted the online survey in March of 20,706 retail investors in 28 countries who intended to invest at least $11,200 (or the equivalent) during the next 12 months. The survey included 2,000 U.S. participants.

Low Risk Appetite

Eighty-five percent of retail investors said they had profited from their investments in the past 12 months, with average gains of 9%. Schroders said this was consistent with global results, where 88% made a profit of approximately 10%.

However, the survey showed a significant disconnect between expected double-digit returns in the next year and investors’ appetite for risk, with many favoring lower-risk investments.

The report said retail investors typically wanted to place only about 22% of their investment portfolio in higher risk/higher return assets, such as equities.

Instead, they preferred to put 41% in low risk/low return assets, such as cash, and 37% in medium risk assets, such as bonds.

U.S. investors in the survey had longer-than-average time horizons, with 35% planning to leave their investment for at least 10 years to gain more profit, compared with 46% of global participants preferring outcomes within one to two years.

Despite the disconnect between expected returns and attitude toward risk, just 22% of U.S. retail investors polled said they would make changes to their investments in the year ahead based on professional financial advice.

Forty-one percent intended to invest as they had done in previous years, and 33% said they would change their investments in response to market conditions.

“The necessity and challenge to generate income from investments is strong, particularly given the global low interest rate environment,” Schroders executive vice chairman Massimo Tosato said in a statement. 

“However, our survey highlights a clear disconnect globally between retail investors’ return expectations and their attitudes to risk. It’s imperative that investors shape their portfolios to balance the risk profile with the returns they are seeking, and in most cases, we believe that will require a level of professional advice.” Demand for Financial Advice

A survey of 220 intermediaries in the U.S. conducted at the same time as the main survey concluded that 65% believed demand for their services would increase over the next 12 months.

Of those who expected increased demand, 28% said market volatility was motivating investors to rely more on professional financial advice.

Nineteen percent felt that clients were currently seeing more opportunities and wanted guidance on their investments and asset allocation.

U.S. intermediaries reviewing their current client base found that their clients had the most diverse goals of all countries surveyed:

  • Long-term capital security—28%
  • Capital growth with regular drawdown—22%
  • Pure capital growth—21%
  • Regular income—20%

— Check out Retail Investors Still Bullish, for Now on ThinkAdvisor.