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Why Individual Investors and Professionals Aren’t Tracking Returns

He says interest rates in particular are of concern because he considers what could happen to economies and stock markets with an increase in interest rates – but that’s not all.

“Professional fund selectors also view interest rates as really distorted valuations,” he says. “It’s something that people don’t usually see, so they’re probably looking at stocks with a more optimistic eye than fund selectors.”

Of the 166 North American fund selectors surveyed, 86% thought high valuations were being distorted by extremely low interest rates. Another 66% believed that the valuation did not reflect the fundamentals of the company. And seven in tenth (71%) thought the stock market grew at an unsustainable rate.

As investment professionals, fund selectors have a more comprehensive view of the market, and are able to view it from a broader context than most individuals. This difference in perspective, Goodsell suggests, may account for differences in market return expectations between professionals and individual investors.

In a 2021 survey, Natixis found that globally, individual investors expect long-term returns of 14.5% above inflation. But when asked to estimate realistic long-term returns for clients, financial professionals’ answers averaged 5.3% above inflation, which was a 174% difference in expectations between the two groups.

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