Investors do not know as much as they believe and generally over confident in their knowledge of finance and stock markets, says a leading financial firm.
After asking 20,000 investors in 28 countries, researchers for investment manager Schroders found close to nine out of 10 investors believed their knowledge and skills were above average.
And the younger the investor, the more likely they were to overstate their talents.
Women were more likely to know their limitations, with 18% confessing they had a less than average knowledge of investment, compared to 11% of men.
Despite this exuberance, just over a third of investors could identify the job of an investment management company.
Web research
Most investors (89%) admitted they wanted to learn more about managing money.
The study found financial advisers play an important role in making investment decisions for investors of all ages.
Younger investors are more likely to carry out web research than older investors.
Although half of investors would consider consulting a financial adviser before making an investment decision, almost the same number were inclined to research opportunities online.
Sheila Nicoll, head of public policy at Schroders said: “The study found that investors tend to be overconfident in their own understanding of investments. This combined with other findings, that investors are unrealistic about the income that they can expect from their investments, means they risk missing their future financial targets.
Balancing act
“The fact that consumers are increasingly being expected to take responsibility for their future financial wellbeing, creates an ever more pressing need for them to be engaged and better informed.
“Encouragingly, investors want to learn more and are looking to financial advisers and online sources to improve their knowledge. In most cases we would recommend getting professional advice.”
The company takes the view that Investors need to shape their portfolios to balance risk profile against the returns they are seeking, and in most cases that will require a level of professional advice.
On average, investors expect an income of 9.1%. This is at a time when most developed markets bonds are paying returns close to zero and the dividend yield on stocks is only around 3%.
“This income expectation supports the study’s finding that investors have too much belief in their own understanding of investments and this could contribute to a short-fall in their long-term financial planning,” says Nickell.