Investors brace for lower returns after strong market run

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The mutual’s latest Family Finance Tracker shows that three-quarters of investors expect total returns of less than 50 per cent over the next five years.

By comparison, the UK’s largest 100 companies returned 50.5 per cent, and the US’s biggest 500 companies 62.9 per cent over the previous five years.

However, Scottish Friendly’s data shows that expectations are varied. One in four investors expect to generate total returns of50 per cent or more in the next five years, withalmost on in five expecting returns of between 20 and49 per cent.

A further 16 per cent in the survey expect gains of 15 to 19 per cent, 13 per cent expect 10-14 per cent, and 16 per cent forecast returns of less than 10 per cent in total over the next five years.The findings come amid growing concerns about the impact of elevated market valuations and heightened geopolitical tensions on future returns.

The data show that expectations vary widely by age – likely reflecting differences in risk appetite, asset allocation, and past experience of similar economic conditions.

More than a third of Gen Z investors expect returns of 50 per cent or more over the next five years, compared to 32 per cent of Millennials, 10 per cent of Gen Xers and just 8 per cent of Baby Boomers (aged 61-plus).

The data also reveals that older-aged investors are most likely to expect lower returns, with 27 per cent of Baby Boomers anticipating total returns of less than10 per cent in the next five years, compared with just over a fifth of Gen Xers (born between 1965 and 1980),11 per cent of Millennials (1981-2016), and 16 per cent of Gen Zers (1997-2012).

Kevin Brown, a savings expert at Scottish Friendly, says: “While markets have delivered strong returns over the past five years, our research reveals that investors are clearly expecting more modest gains over the coming five.

“This perhaps reflects a growing perception that the environment ahead may be more challenging, with elevated valuations –particularly in the US – and ongoing geopolitical uncertainty influencing investor sentiment.

“But, if the past few years have shown us anything, it’s that markets can defy expectations –even when sentiment is cautious, valuations are high, or conditions appear challenging.”

Kevin continues: “Against that backdrop, investing should be viewed through a long-term lens. Whether returns are more subdued or not over the coming years, the most important thing for investors is to remain invested, and to avoid reacting to short-term market noise.

“Over time, it is this discipline that can help investors build long-term wealth, with markets historically helping investors grow money ahead of inflation when held over the long term.”