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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.

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