Participants Appear Overly Optimistic About Potential Returns

While investment managers are increasingly reserved in their predictions about near- and mid-term economic growth, retirement plan participants are still banking out outsized returns.  

Findings from the 2016 Individual Investor Survey by Natixis Global Asset Management suggest an element of irrational exuberance persists among U.S. investors, with many saying they expect returns in the next several years to be significantly higher than what asset management professionals anticipate.

On average, U.S. investors “believe they will need to earn a real annual return of 8.5% above inflation to achieve their investment goals,” but at the same time 70% say it’s realistic that they can achieve the returns they need over the long term. This outlook stands in direct opposition to the opinion of many asset managers, who have argued that 7% or 8% annual return assumptions will not hold in coming years and decades, necessitating greater emphasis on saving over investing as the centerpiece of retirement prep.

Another conflicting signal in the data is that, “if forced to choose, 82% of investors would take safety over performance.” According to Natixis researchers, this indicates that individual investors clearly feel themselves being pulled in several different directions—between the need to save and invest aggressively to fund retirement and the worry about losing much-needed money in a market downturn event should risky assets turn sour. 

It is also telling, Natixis observes, that 80% of investors say they make at least some effort to target their investment portfolio based on personal goals and personal benchmarks. The same number (81%) of people “would be happy if they achieved their investment goals over a year even if they underperformed the market.”

Natixis warns that, even though individuals say they invest based on personal goals, 45% of investors “admit they don’t have clear financial goals,” and 52% “don’t have a plan to help them reach their goals.”

NEXT:  Growing awareness of shrinking growth 

According to the Natixis survey, investors say the biggest threats to their investments in 2016 are a lasting global economic slowdown (41%), a domestic recession (37%), volatility tied to the presidential election (35%), volatility tied to interest rates (34%) and low oil prices (31%).  

Importantly, investors today view market dips more as pain points than opportunities. When market shocks occur, 60% of investors say they “struggle to avoid making emotional decisions,” and 66% of investors say they “feel helpless when trying to protect their portfolio from market shocks.” Members of Generation Y feel the most helpless (74%) compared with 63% of Generation X and 62% of Baby Boomers. Still, 65% of investors overall say market shocks will not affect their long-term investment strategy.

Thinking about the tougher markets, 75% of investors “want new portfolio strategies that can help them better diversify their portfolio,” while nearly the same number (70%) would like to invest in strategies that “don’t move along with the broader markets but do offer new sources of return.”

Just more than half of investors (52%) use alternative investments, the research shows. They use them for diversification (61%), to achieve better returns (52%), and as an alternative to fixed-income strategies (36%). When asked what would better enable investors to achieve their investment goals, the top choices selected were learning more about investing (42%), devoting more time to their investment plan (36%), and getting professional financial advice (32%).

Additional findings are presented at