Investors need to mind the gap between expected returns and actual earnings, says a new report.
Few receive the returns they expect from investments – and the gap is widening between real and imagined yields.
According to global research by fund managers Legg Mason Global Asset Management, disillusion is increasing for investors who seem to expect an average annual return of 9.5% but only pick up an average 6.2%.
The study shows the shortfall between their expectations and reality has grown from 2.8% to 3.3% over the past 12 months.
British investors are the most downcast about their returns, receiving average returns of 5.1% against their expected result of 6.6%.
South Americans feel chill
Belgian and Spanish investors were even worse off with returns falling short by 2.9%.
Investors in some countries have more unrealistic views about yields from their investments – for instance those in Chile banked on 10.5% last year, but only received a disappointing 5.2%, which was less than half of what they wished for.
Other South American investors were similarly disheartened about their returns, with Colombians also concerned that their investments fell short of their expected yields by 4.8%.
The disappointment was felt hard worldwide, as 70% of investors interviewed in several countries all expressed they considered generating income from their holdings as important.
In fact, Colombians were the most despondent about their returns as 88% expected to generate income from their holdings.
The exceptions were Taiwanese and Swiss investors, who shied away from generating income in favour of growth.
Unrealistic expectations
One of the only countries where the expectation gap narrowed was the United States, which came out as the most disillusioned last year, with returns an average 2.6% less than desired. This year, the desired rate of return was 8.3% against an actual rate of 6.4%, closing the gap to 1.9%.
Matt Schiffman, managing director at Legg Mason Global Asset Management, said: “Most investors are looking for income and it’s clear from the research that few received what they had expected to make.
“But though the expectation gap is widening, it’s down to unrealistic hopes from investors rather than plunging yields.
“Actual rates may rise to close the gap over future months as interest rates are predicted to rise as world economies drag themselves out of the red and back into the black.
“The only other real option for investors is to examine their portfolios to make sure they have the right mix of holdings that may give them a chance of realising their hopes of generating a worthwhile income.”
