UK investors’ returns expectations are outpacing reality, due in large part to holding too much of their money as cash, according to research by Fidelity International.
The firm’s Be Invested Global Study took in responses from 13,000 investors across Europe and Asia Pacific.
The researchers found UK investors have some of the highest expectations for returns, with an annualised 9.2% over the next five years.
The portfolios held may leave them more than 40% short of their goals though Fidelity found, based on its ‘capital markets assumptions’ on investment returns.
Cash accounts for almost 17% of the typical investment portfolio globally, but almost half (42%) of UK retail investors’ assets on average.
Despite this, 73% remain confident they will meet their long-term financial goals, which Fidelity said is evidence of a growing “aspiration–action gap.”
See also: ‘The respite is short-lived’: Industry reacts to lower-than-expected UK inflation
Investors spoken to for the study cited practical reasons for holding cash, including maintaining an emergency fund (46%) needing near-term access to money (15%), waiting for better market conditions (10%), and concerns about potential losses (10%).
Closing the gap between expectations and outcomes will require stronger investor support and an environment that encourages long-term investing, Fidelity said.
The firm recommended three practical reforms to help address this; more balanced risk warnings, strengthening financial education and supporting long-term investing through policy
Marianna Hunt, personal finance specialist at Fidelity International, said: “Stock markets have performed strongly in recent years, but that doesn’t mean those returns will continue forever. Expectations of around 9% a year may be too optimistic in today’s environment.
“At the same time, inflation means that cash risks losing value in real terms over time. Staying invested remains key to improving the chances of meeting long-term goals.”
