Millennials’ income and investing expectations unrealistic

Added 16th June 2016

Investor expectations for income and long term returns appear to be significantly inflated, with many looking set for disappointment. Millennials’ expectations, however, are the most unrealistic, say Schroders.

Millennials’ income and investing expectations unrealistic

The Schroders Global Investor Survey 2016 found that, globally, the average level of desired income was 9.1%.

However, with many countries’ interest rates at historic lows, achieving this income level is unlikely.

Millennials are the group most set for disappointment, with a minimum desired level of returns of 10.2% per year, compared with 8.4% for investors over the age of 36.

Short term investing bias

The survey also highlighted investors’ bias towards short-term investing.

On average, global investors expect to hold their investments for 3.2 years. While this may be fine for cash and certain types of bonds, it will often prove too short a time period to counteract the volatility associated with equities.

"Speaking to a financial adviser can help investors align their investment portfolio with their needs and their financial goals.”

Less than a fifth (18%) of investors said they held investments for at least five years, the minimum realistic holding period for equity investments and around a third (31%) have a very short-term view, investing for less than a year.

Again, this trend was pronounced in millennials who invest for over a year and a half less than investors over the age of 36 (2.3 years for millennials vs 3.9 years for investors aged 36+).

Immediate financial needs

Despite this apparent knowledge gap, the results demonstrated that investors’ demand for income is still prevalent.

There were three main reasons respondents gave for investing, all based on current or future income:

  • to supplement their pension;
  • to re-invest income and grow their portfolio;
  • to supplement their salary.

However, the study showed millennials prefer to invest for immediate financial requirements, rather than the long-term.

Compared to older investors millennials are more likely to invest to supplement their salary (46% millennials vs 41% investors aged 36+), provide income for their children (30% millennials vs 19% investors aged 36+), buy something other than a home (28% vs 16%) and pay towards their children’s education (26% millennials vs 16% investors aged 36+).

On the other hand they were less likely to invest to supplement their pension (35% millennials vs 52% investors aged 36+) or re-invest income and grow their investment portfolio (41% vs 46%) than investors aged 36+.

Financial advice

Financial advisers still remain an important part of the investment decision making process and half of all investors globally said they would consult a financial adviser the next time they make an investment decision.

This was as evident amongst millennials as it was with investors aged 36+. However, 44% of global investors said that they would do their own research.

Gavin Ralston, head of thought leadership at Schroders, said: “Investing is seen as an important contributor to meeting current and future financial goals. This is evident in the high demand for income. The survey showed that getting back the money invested and getting a return higher than inflation are what is most important to investors.

“However, investors’ short-term outlook and unrealistically high return expectations raise concerns that investors could be left disappointed.

“We encourage investors to think long term when investing, as our fund managers do.  We believe a realistic risk adjusted return can be achieved when investing over a period of at least five years. Speaking to a financial adviser can help investors align their investment portfolio with their needs and their financial goals,” Ralston said.

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 

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