Investors in Singapore have unrealistic expectations of investment returns and a short-term investment horizon, which could spell trouble for them, according to a survey.
The Schroders Global Investor Survey 2016 found that investors in Singapore also have strong confidence in their investment understanding.
It surveyed 20,000 investors in 28 countries, of whom 500 were from Singapore, from March 30 to April 25 via an online poll.
UNREALISTIC INCOME EXPECTATIONS
The survey highlighted a tendency among investors to be "overly optimistic" about income returns.
An average investor expects a minimum return of 9.2 per cent per year which seems unrealistic, given the current average stock market yield of 3.8 per cent.
This over-optimism is particularly pronounced among millennials, who expect a 9.6 per cent return on their investment per year, compared to 8.9 per cent for investors aged 36 and over.
Ms Susan Soh, country head at Schroders Singapore, said: "In today's low-interest-rate environment, Singapore investors' return projections are extremely high. In order to minimise income shortfall, investors need to actively consider their investment needs and align their risk-adjusted return profile in the light of current market conditions."
SHORT-TERM INVESTING BIAS
STAY INVESTED FOR AT LEAST 5 YEARS
A realistic risk- adjusted return can be achieved when investors stay invested for at least five years. Any period shorter will often prove insufficient to counteract the volatility associated with various investment types, such as equities. ''
MS SUSAN SOH, country head at Schroders Singapore.
Investors also tend to have a short-term investment view. While a minimum of five years is usually recommended by fund managers, investors stay invested for a bit over three years on average.
Millennials are even more short- term-oriented, as they hold their investments for an average of 2.61 years, compared with 3.47 years for their older counterparts.
Ms Soh encouraged investors to think long-term when they invest.
"We believe a realistic risk-adjusted return can be achieved when investors stay invested for at least five years. Any period shorter will often prove insufficient to counteract the volatility associated with various investment types, such as equities."
STRONG CONFIDENCE AMONG INVESTORS
Singapore investors' self-belief is high, with more than half (55 per cent) describing themselves as having a higher-than-average understanding of investments.
This confidence is higher among millennials, with 61 per cent of them agreeing to the statement, compared with half of their older counterparts. And very few (11 per cent) feel they have a less-than-average understanding.
On a positive note, investors have an appetite to learn more. Almost all (95 per cent) investors believe they need to improve their understanding of investments.
The survey results also indicated that an average investor here starts saving for retirement at 31.5 years of age, while setting aside only 14.9 per cent of their annual income.
Ms Soh said this may mean that some investors will not have accumulated sufficient funds to support their desired retirement lifestyle. Hence, it is important for investors to plan their investments realistically with their financial goals in mind.
Investors felt they would live just under two decades (19.8 years) beyond their retirement date, slightly below the Asian (21.8 years) or global average (21.2 years).
This may be disadvantageous as they might find themselves in the undesirable situation of outliving their nest eggs.
Meanwhile, a Legg Mason Global Investment survey highlighted that younger investors here are increasingly accepting investment advice from new media sources and trading services via emerging trading platforms.
The survey results indicated that more than half of millennials have "trust" in investment advice received via an online platform (robo-adviser; 61 per cent) and forums, blog posts and alternative media (54 per cent).
This suggests that the overall level of trust in online investment advice from non-traditional sources is likely to grow as millennials and still younger investors represent an increasingly large portion of the active labour force and investing public.
The online survey polled 260 Singaporeans between Dec 3 last year and Jan 8.