UK investors expect an average annual return of 8.7 per cent on their investments over the next five years, the latest Schroders Global Investor Study shows.
However, co-head of Schroders UK Intermediary Business James Rainbow deems this overly optimistic and warns investors need to moderate their expectations.
The global study of 22,000 investors, 1,000 of which are in the UK, found that 58 per cent of UK investors are expecting to make an average return of up to 10 per cent over the next five years while 31 per cent anticipate a minimum of 10 per cent a year.
This is notably higher than the performance of world stock markets over the past three decades; the MSCI World index has returned an annual average of 7.2 per cent, with dividend income reinvested.
The Schroders Economics Group has forecast a 5.4 per cent annual return for UK equities over the next seven years, or 2.4 per cent a year after inflation.
Rainbow says: “Investors’ expectations for returns of nearly 9 per cent over the next five years look very optimistic.
“The UK stock market has seen a remarkable rally in recent years, which has probably buoyed confidence. But much of the strong performance is due to the extreme actions taken by central banks to stimulate the economy. The broader picture is that we’re in an age of low rates and low growth. It’s therefore wise to expect lower returns.”
Despite investors’ high expectations they are risk averse due to international events, with 48 per cent ramping up their cash allocation and 59 per cent saying they are taking a more cautious approach to investments.
A fifth of the UK investors surveyed plan to deposit their disposable income in a bank savings account while 17 per cent intend to invest in equities, bonds or commodities. A further 17 per cent plan to spend their disposable income on a luxury purchase and 4 per cent intend to keep it as cash at home.