UK investors’ return expectations outpacing their investment realities

UK investors have some of the world’s highest investment return expectations but are at risk of missing their long-term goals, with an ‘aspiration-action’ gap emerging between the returns they expect and how they are invested, Fidelity International has warned.

Its Be Invested Global Study found that investors in the UK had some of the highest aspirations for their returns, with an average annualised return expectation of 9.2 per cent over the next five years.

However, Fidelity International said that many had significant amounts of money held in cash, including within investment portfolios, and current strategies could leave them more than 40 per cent short of their goals.

On average, 42 per cent of UK investors’ investable assets were held in cash, with cash accounting for nearly 17 per cent of the typical investment portfolio.

Investors cited several reasons for holding cash, including maintaining an emergency fund (46 per cent), needing near-term access to money (15 per cent), waiting for better market conditions (10 per cent), and concerns about potential losses (10 per cent).

Almost three quarters (73 per cent) of UK investors were confident their investment portfolio would help them meet their return expectations, although Fidelity International said its study highlighted a ‘significant mismatch’ between expectations and current portfolio positioning.

“There’s a clear mismatch between what investors expect and how they invest,” commented Fidelity International personal finance specialist, Marianna Hunt.

“Cash has a role to play in everyone’s finances, but holding too much of it - particularly over long periods - can significantly limit your ability to grow the value of your savings.

“Often this ‘aspiration–action gap’ comes down to the fact that people know what they should do but feel nervous about taking the next step.

“Stock markets have performed strongly in recent years, but that doesn’t mean those returns will continue forever. Expectations of around 9 per cent 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.”

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