Louise Watson
In post COVID markets, Australian investors are optimistic about maintaining above 13% returns from well-diversified investment portfolios, however they will need guidance from financial professionals to balance their desire for safety over performance and comfort levels in taking risk.
According to the findings of the Natixis Global Survey of Individual Investors (with US$100,000+ investible assets), return expectations have only taken a 0.3% hit in post COVID markets with Australian investors expecting a 13.5% real annual return this year, down from the 13.8% real return they reported receiving in 2020.
These expectations align with the more positive experience Australian investors report during COVID, with 62% not impacted by loss of job or income, illness, financial setback or forced to make a superannuation withdrawal as a result of the pandemic, higher than the 54% of global investors who also reported not being affected by fallouts of the pandemic.
Despite COVID-19 impacting Australians in many ways, surveyed investors reported that during the pandemic they felt confident, fortunate, resilient and comfortable about their financial security, with 80.5% reporting they felt financially secure.
Furthermore, their attitudes to retirement were also positive, with 73% reporting they were confident they would be financially secure in retirement, despite 61% accepting they will need to keep working longer to do this.
However, investors will need to review how to reach their retirement goals, given almost 79% of those surveyed said they would take safety over performance and only 55% were comfortable in taking risks to get ahead. The responses show key areas of concern for them in retirement were interest rates and inflation. They worried low interest rates would affect their ability to generate an income in retirement (65%) and over the long-term, 59% considered inflation to be one of the biggest risks to their retirement security.
Despite this relatively positive experience compared to other parts of the world, investors reported learning some lessons post COVID-19 including:
- Keeping spending in check – 44%
- Having an emergency savings account – 28%
- Avoiding emotional decisions – 22%
- Understanding risk in their portfolio – 19%
- Having an estate plan (including life insurance, a will and long term care plan) – 16%
This mild experience of COVID-19 also impacted their approach to investing, with almost 60% of Australian investors making no changes to their investments. Although 15% increased trading activity through their adviser and 13% made withdrawals from savings and investment accounts over the past 12 months, 12% invested more.
“While 81% of Australian investors report they are generally satisfied with their investment performance, many will need to generate higher returns to achieve their retirement outcomes and potentially look to asset classes such as alternatives and real assets as a way to generate higher returns in a low income yield environment,” said Louise Watson, Managing Director and Head of Distribution for Natixis Investment Managers, Australia & New Zealand.
Road to recovery
The biggest concerns for Australian investors as they look to the future are slow economic recovery (44%), low interest rates (42%) and market volatility (40%). However, one of the biggest unforeseen challenges is managing the gap between their desire for safety and investment performance.
This is because their performance expectations are high, influenced by the 14% real annual return (above inflation) they report receiving in 2020. As the world strives to establish a new normal and the recovery continues, Australian investors are seeking a marginally lower return – 14% real return while their global counterparts seek a 13% real return.
“Australian investors are going to have to take on some risk if they want to achieve their double-digit returns and their more longer-term investment goals,” said Damon Hambly, CEO Australia, Natixis Investment Managers. “It is clear from the Global Individual Investor Survey that Australian investors trust their financial advisers (89%) and they will need to work with them in this recovery phase of the market to ensure their investment portfolio has the right mix of actively managed funds to achieve the desired result.”
Investments to suit market conditions
According to the survey, the most important factors in selecting investments are risk management (44%), low fees (42%) and performance above benchmark (39%).
Despite the desire to maximise returns and for portfolios to be actively adapted to suit changing market conditions, Australian investors believe index funds give them comparable returns to the market (68%), are less risky (57%) and can help minimise losses (60%).
In post-COVID markets, investors (68%) identified access to investments that reflected their personal values would motivate them to invest more for their retirement. There was also an expectation from 69% of investors that their fund manager would look at more than just the financial aspects of the company.
The road forward
As the pandemic shifts into the recovery phase, investors are eyeing big opportunities to grow their assets with optimism extending beyond the reopening of global economies.
Mr Hambly said: “The challenge for many will be to ensure that investors trade on realistic expectations and rationalising those expectations with genuine tolerance for risk, overcoming their fears, and ultimately putting into practice the critical lessons they have learned around spending and avoiding emotional decisions.”