Do you have realistic investment expectations?

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When you invest, how much do you expect to receive in return? A survey suggests that some investors have unrealistic expectations that could affect their long-term financial security.

Research from Aegon found that half of UK adults have put money into investments because interest rates are low. While this can be a positive step for long-term financial security, it’s important to understand the risks and potential returns.

Of those that decided to invest, 35% said interest rates falling to between 1 – 2% was the tipping point, and a further 39% said it was when interest rates fell below 1%.

Before you decide to invest, it’s important to make sure it’s the right decision for you. Here are three things you should consider first:

  1. What is your goal? Investments experience volatility and their value will rise and fall. In most cases, you should only invest with a minimum time frame of five years to allow the peaks and troughs to smooth out.
  2. Do you have an emergency fund? Ideally, you should retain some of your savings in an accessible account for emergencies. Worryingly, 10% of people said they had invested all their extra cash, which could leave them financially vulnerable
  3. Do you understand investment risk? All investments will have some level of risk, so you should consider what would happen if the value of your investments were to fall.

If you decide to invest, you should look at what your expectations are.

What are realistic investment expectations?

Investment returns cannot be guaranteed, and the potential returns will vary depending on the investment.

As a general rule of thumb, the more investment risk you take, the higher the potential returns. However, this doesn’t mean you should automatically invest in these kinds of investments. High-risk investments are unlikely to be suitable for the majority of investors, even when the potential returns are high.

What is realistic in terms of expectations will very much depend on the investments you choose.

According to Credit Suisse’s Global Investment Returns Yearbook 2021, over the last 40 years, returns from world equities have been 6.8% a year. In contrast, the Aegon survey found that it’s only when an investment promises a return of 10% or more that the majority of investors become sceptical. The findings suggest that some investors expect returns that are much higher than average.

The dangers of unrealistic investment expectations

Your investments not meeting your expectations can be disappointing, but it could have larger consequences too.

1. It could affect other financial and lifestyle decisions

Financial decisions not meeting your expectations can have a serious impact on your goals. If you were expecting investments to deliver a 10% return, you may have planned to retire early, for instance. Or you may increase your spending in light of this expectation.

Unrealistic expectations can mean you make additional decisions based on this information that are not right for you. To create a reliable financial plan, you need to work with information that is as accurate as possible. That means including investments returns that are realistic.

2. It may leave you vulnerable to scams

One of the signs of a scam is unrealistic investment returns. However, if your expectations are skewed, you may not spot a scam until it’s too late. The research found that just 35% of investors would avoid opportunities that promised high returns. Worryingly, 5% admitted they are less concerned about safety, and always look at investments offering the best returns.

In most cases, money lost to scams cannot be recovered. Taking your time to review investments is important. Keep in mind that investment returns cannot be guaranteed and if it sounds too good to be true, it probably is.

How financial planning can you manage investment expectations

Whether you’re new to investing or have built up a portfolio over the years, getting a second opinion can help. We can demonstrate how different investment outcomes would affect your wealth and help you create long-term plans that give you confidence in the future. We’ll help you understand what you can expect from your investments, and what opportunities may be right for you.

Please give us a call if you’d like to talk about investing and how to make it part of your wider financial plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.


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