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Cautious investors ‘unrealistically optimistic’ about returns

Cautious investors ‘unrealistically optimistic’ about returns

Cautious investors are being “unrealistically optimistic” about how much their investments will make, new research shows.

Australians are among the most risk-averse investors in the world, but a new report shows the most cautious still expect their investments to gain in value by more than 10%, according to Deloitte Access Economics.

The reality is that by the end of calendar year 2016, on the Australian Securities Exchange the benchmark S&P/ASX200 gained 7% compared with a drop of 2.1% in the comparable period in 2015. It’s up around 1% year to date since January 2017.

Young investors appear to be more cautious than older investors. Deloitte’s ASX Australian Investor Study 2017 showed 81% of investors under 35 want guaranteed or stable investment returns, while 41% of investors over 55 “are comfortable with some variability in their returns”.

The report showed 21% of the most risk averse investors expect returns over 10%.

“Given that interest rates are currently at historical lows, these investors may be unrealistically optimistic about their return expectations,” the report concluded.

It found there’s “an insufficient understanding of diversification” – one of the most effective ways to manage investment risk.

Consequently, while 11.2m Australian adults, or 60%, hold investments outside of their institutional superannuation fund, 75% of share owners hold only Australian shares, ASX Ltd’s chief executive Dominic Stevens told the Stockbrokers and Financial Advisers conference in Sydney on 24 May, 2017.

Investing on an exchange is more popular (62%) than holding cash (56%) or buying investment property (37%).

More young Australians are investing. In the past five years, the number of 18-24 year olds investing outside of their super funds has doubled from 10% to 20% and the proportion of 25-34 year olds has risen from 24% to 39% over the same period, the report showed.

Stevens told the conference that superannuation funds have grown from $1trn in 2007 to around $2.2trn in 2017, and projected the figure would reach $9.4trn by 2035 based on the research of Deloitte Actuaries and Consultants.

Around 15% of Australian adults reported having a self managed super fund and more than 20% that do not currently have an SMSF said they planned to set one up within the next two years, the report found.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. It’s vital to remember that the value of shares in any company can fall as well as rise, which means you could lose money by investing in them. Past performance is not an indication of future performance. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning Pty Ltd ABN 65 003 900 169 AFSL 231139 a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 (the Bank). The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. Neither Commonwealth Securities Limited nor members of the CBA Group accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.