The world is shakily emerging from an unprecedented year with the Covid-19 pandemic bringing the swiftest market downturn in history, as well as the most rapid recovery on record. But despite this volatility, a new survey says that U.S. investors may have unrealistic views on future investment returns.
Natixis Investment Managers’ new Global Survey of Individual Investors report finds that long-term investment return expectations of U.S. retail investors rose to 17.5% above inflation, far exceeding pre-pandemic levels, and three times what financial advisors say is realistic.
Expectations no match for financial reality
There is a noticeable disconnect between investors and advisors, the study finds.
The difference between a 17.5% return and the 6.7% average annual returns U.S. financial advisors believe is realistic, represents a 161% gap between investor and advisor expectations, more than double the gap of 73% in 2019.
And while Americans rank volatility as their biggest immediate investment concern, 60% percent of investors say they are comfortable taking risks to get ahead, but most (77%) would prefer the safety of asset protection over investment performance.
Personal financial behavior “stress-tested”
The pandemic stress-tested the personal financial behavior of investors of all ages according to the report, but especially Gen X and Gen Y.
- 44% of investors, including 51% of both Gen X and Gen Y investors, say the pandemic convinced them of the importance of keeping their spending in check.
- 82% of Gen Y investors made changes in their investment accounts as a result of the pandemic.
- Compared to other generations, Gen Y investors were most likely to increase online trading activity (43%)—which provided fuel for the meme stock phenomenon—and to have opened a margin account (13%).
Link between health and financial security
The pandemic took one of the hardest financial tolls on households where one or more caught COVID-19.
Nearly one in five U.S. respondents either contracted COVID-19 and/or a family member did. Of that group, 31% experienced a significant setback to their financial security, nearly twice as many as those in households in which no one contracted the virus (16%).
David Giunta, CEO for the US at Natixis Investment Managers, says the biggest challenge for investors and those who advise them will be to position themselves for success and to remain resilient
“The long-tail physical, financial and fiscal effects of the pandemic are far-reaching and still unfolding, which creates both risks and opportunities.”
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
