Stocktake: Survey finds ‘absurd’ investor expectations

Ordinary investors are optimistic about the prospects for stocks – too optimistic.

A study of 8,550 investors across 24 countries by Natixis Investment Managers shows a huge gap between the expectations of clients and advisers. On average, global investors expect stocks to beat inflation by 14.5 per cent over the long term – almost three times greater than the expectations of financial professionals, who predict inflation-adjusted returns of 5.3 per cent.

In the United States, where Natixis polled 750 investors with at least $100,000 in investable assets, expectations are especially high; investors expect long-term real returns of 17.5 per cent. That is, says Ritholtz Wealth Management's Ben Carlson, "nothing short of absurd"

However, it’s notable that the expectations gap is a truly global phenomenon. The lowest gap was reported in Germany, but even here investor expectations were still more than double what advisers consider to be realistic (10.7 per cent versus 4.9 per cent).

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Natixis suggests investors are suffering from recency bias; having enjoyed excellent returns under difficult circumstances, they assume even better returns under better conditions.

That’s a dangerous assumption. “If these survey numbers are to be believed,” says Carlson, “investors are about to be very disappointed.”