According to Natixis IM, retail investors are expecting higher and higher returns that are increasingly out of line with the levels deemed realistic by professionals. However, they are not ready to assume the risks.

Are investors ready for the post-Covid world? Not so sure, according to the results of a richly informative study conducted between March and April by Natixis Investment Managers (IM) among 8,550 wealthy investors with more than $100,000 equivalent to invest.

As every year, return expectations are rising. For 2021, respondents expect a return of 13% on their financial investments (after inflation), compared to 12.5% in 2020, 10.7 % in 2019 and only 8.9% in 2014. This steady rise is out of step with the equally steady fall in long-term interest rates, which have become zero or even negative as a result of abundant global savings and the very accommodating monetary policies of central banks, led by the Fed and the ECB. 

Logically, however, these expectations should follow the evolution of the returns available on the financial markets, and particularly on the interest rate markets. However, the opposite is true.

The second observation is that the performance expectations of individuals are increasingly different from those of financial professionals.

"For 2021, retail investors expect annual returns of 13 % above inflation. Over the long term, they even expect 14.5 %. Both figures are significantly higher than the 5.3 % that financial professionals consider realistic. As a result, the overall expectation gap now stands at 174 %, 53 percentage points higher than what we saw in 2020", summarizes the study.

For France, the gap is a little less clear but it still amounts to 157 % with a yield expectation of 12.1 % against 4.7 %, a level perceived as realistic by professionals. 

Finally, the third and equally surprising point is that retail investors do not seem to be willing to take on the risks that are supposed to bring them such returns:

"The three quarters (76%) of European investors say they strongly prefer safety to investment performance, and more than half (52%) believe that volatility, one of their main concerns, is detrimental to their savings and investment objectives"..

Main concerns

Equity investments, the only ones that come close to meeting their expectations, are by their nature accompanied by significant short- and medium-term fluctuations.

The survey lists the main concerns of investors, ranked somewhat differently by country. The risks that worry the French the most are, in order: a weak recovery, volatility (again), tax increases, inflation and low interest rates. 

In terms of what Natixis IM calls financial fears, the ranking of international investors' responses is as follows: large unexpected expenses at 35%, taxes at 27%, health expenses at 27%, risk of downgrading and loss of standard of living (26%) and loss of employment (25%)

Fears of tax increases are particularly strong in France (46%), a country with one of the highest tax rates in the world.

In terms of investing, respondents are most interested in avoiding emotional decision-making (29%), better understanding the risks they face (25%), ensuring that their portfolios are balanced and diversified (24%), and better assessing the tax consequences of their decisions.