Individual investors still expect double digit investment returns despite new market environment, finds Natixis IM

by | Jun 21, 2023

Investors around the world remain positive about their finances, despite stubborn inflation, looming recession, and last year’s stock market losses, according to a global survey of 8,550 individual investors by Natixis Investment Managers (Natixis IM). The survey of investors with more than $100,000 in investable assets, conducted in March 2023 found that 69% globally have a positive outlook on the state of their finances, which increases to nearly three quarters (73%) of UK individual investors*. Just 17% in the UK say they feel stressed.

The economy and markets have undergone significant shifts moving from a world of low inflation, low rates, and low dispersion to one of higher inflation, higher rates, and higher levels of dispersion. These changes may highlight critical gaps in investment knowledge and investment portfolios, as UK individual investors are still expecting to make returns of 9.3% above inflation this year, higher than the global average expectations of 8.6%.

Investors globally are very aware of the changing economic environment and, while largely confident in the long-term, are fearful of the associated risks – two thirds (62%) of investors say higher everyday costs are their biggest financial fear, rising to 71% amongst UK investors.

In addition, 43% of UK investors said that a large, unexpected expense is a big concern, while 29% say that one of their biggest financial fears is a tax increase. Despite recession concerns, only 18% are afraid they will lose their job.

Over the longer term, individuals around the world expect 13% returns above inflation. While expectations are still high, the gap between what investors want and the 9% above inflation advisors say is realistic, has narrowed from 61% in 2021 to 42% today.

Darren Pilbeam, Head of UK Sales, Natixis IM, said, “Volatility and inflation are certainly impacting investors’ short-term outlook but longer-term they are more optimistic about returns and their capacity to save for retirement. Central to achieving their goals will be working with trusted financial advisers, and the survey confirms that over half of UK investors still recognise the important role an adviser provides in navigating financial markets.

“The findings also reaffirm the importance of including active management to deliver returns and the importance of investors understanding the role different asset classes can play in delivering diversification and performance to a long-term investment portfolio.”

More help needed to strengthen investment portfolios  

60% of UK individual investors say inflation is their top investment concern, and 53% say it is significantly impacting the ability to save for retirement. 53% believe they need to invest more to make up for inflation and 70% say rising costs have made them realise they must save more money, yet 42% say they aren’t saving more.

After inflation, 47% see a recession as the biggest risk to their portfolio. This is followed by 34% who said market volatility and 27% who see rising rates as the biggest threats to their investments.

In response to the new environment, globally 47% of individual investors say they have more confidence in bonds to outperform in 2023 than equities compared to just 30% in the UK. In the UK, 25% plan to increase their bond investments in response to rising rates – far lower than the 46% globally who are increasing investments in bonds. However more information may be required. While four in ten (42%) of UK investors say they understand the role of bonds in portfolios and the impact of rising rates on bonds (40%), when quizzed** about what happens to bonds in a rising rates environment, only 0.8% (5 out of 600) of investors could provide the correct answers, 27% selected one correct answer, and 54% stated that they did not know.

From ‘set it and forget it’ to seek advice

Over the past decade, investors generally saw a constant upward trajectory of investment markets due to low rates and high correlations, which made lower costing index funds attractive. Passive investments and DIY portfolios that were set and left performed well but investors are now facing a more complicated world, in which investment portfolios need to be adapted to suit the new market environment.

Only around six in ten (59%) UK investors recognise that index funds provide returns that are comparable to the market, while 61% assume index funds will help them minimize losses, and 56% assume that index funds are less risky than other investments.

In terms of risk, 29% of UK investors define risk as exposing their assets to volatility, and 30% say risk is losing wealth. While valid, it seems investors have lost sight of the bigger picture as only 8% define risk in terms of failing to meet their long-term financial goals.

Financial advisors are three times as likely to define risk in terms of missing out on financial goals (24%) demonstrating the benefits of speaking to a financial professional, who are more likely to focus on the long-term. Recent inflation has highlighted the importance of financial advice for 55% of UK respondents, yet only 31% think they need professional advice for investments. When asked what advice services interest them the most, retirement income planning and financial planning come out on top, at 54% and 39% respectively. When asked about investments specifically, 29% of UK investors want their adviser to offer them tax-efficient investment strategies, 26% say sustainable investments, and 23% private investment opportunities.

Great expectations

Despite last year’s downturn as most major indexes posted double digit losses***, respondents around the world say they generated positive returns of 1.9% on average.  Investors in the UK came closest to a loss, reporting they generated an average positive return of just 0.6% even as the FTSE delivered a nearly 20% loss.

Most seem to anticipate a return to the bull market that delivered average annual total returns of 14.6% from the S&P between 2012 and 2021, including gains of 30% in 2019, 18% in 2020, and 28% in 2021[1].  Long-term returns expectations of 13% annually reflect this high level of optimism. UK investors are a little less optimistic and expect 8% returns over the long-term. For 2023 they are more positive as UK individual investors have average return expectations of 9.3% above inflation. That adds up to expectations for real returns of 14.3% or more in many countries this year, assuming inflation at 5%.

The full report can be found here: https://www.im.natixis.com/intl/research/2023-individual-investor-survey


[1] https://www.officialdata.org/us/stocks/s-p-500/2010?amount=100&endYear=2021

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