Investors, and especially young investors, have unrealistic expectations about their money.
The annual Global Investor Study, a study commissioned by Schroders Investment Management that surveyed 20,000 investors from around the world, was released Wednesday, and its main takeaway probably shouldn’t be a surprise: People expect higher investment income on assets held for a shorter period of time than is realistic.
On average, investors hope to generate 9.1% annually in investment income, but with many countries’ interest rates at historic lows, most of these investors could end up disappointed.
Millennials, which the Schroders report defined as investors aged 18 to 35, have especially disproportionate goals: The minimum desired investment income was 10.2% for millennials, compared to 8.4% for investors older than 36.
Global investors also seem to be biased towards short-term investing — on average, they expect to hold their investments for a little over three years, which “is often too short a time period to counteract the volatility” of equities, the report says.
Less than a fifth of investors said they held investments for at least five years, “the minimum realistic holding period for equity investments,” as noted by the authors of the report. This bias was once again exaggerated in millennials, who expected to hold their investments an average of one and a half years shorter than older investors. Millennials are also the least likely age group to actually stick to an investment plan.
Millennials also tend to invest for immediate financial requirements, like to supplement their salary, buy things, or pay for children, and they’re less likely to see investment as a way to supplement their pensions and grow their retirement portfolios, according to the Schroders report. And even though their investment window is longer, they hold almost twice as much cash in their portfolios as baby boomers.
Thinking long-term is easier said than done, of course, but especially in a time of such low interest rates, millennials might have to start practicing patience when it comes to their investments, or else be left very disappointed.