A recent survey done by Schroders indicate that investors are too overconfident.
93% of investors expect an average return of 10% on their investments on the next 12 months. But they planned to put just 21% of their assets in equities, 42% in cash and 37% in bonds.
The survey also saw a biased towards short-term investing with 45% preferring investments that yield outcomes within one to two years.
Ms Susan Soh, managing director at Schroder Investment Management (Singapore), said the survey highlighted a "clear disconnect" between investors' expected returns and their attitudes to risk. Expecting double-digit returns within a year while placing under a quarter of their portfolios in higher-risk assets was not "a realistic approach to investing", she said, suggesting that investors seek professional advice to "balance the risk profile with the returns they are seeking". – “7 in 10 count on cash savings for retirement”, Straits Times 24 May 2015.
To get 10% returns with just 21% in equities imply that the high risk assets have to grow by 10/0.21 = 48% in just 12 months. This assumes cash and bond returns are 0%. The time horizon of just one to two years is unrealistic because generally the higher risk an investment, the longer the time horizon required.
Obviously such unrealistic expectations are due to the lack of financial knowledge. Financial knowledge can only be overcome through financial education.
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