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Investors warned “earnings growth will be lower”

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Despite 2022 likely to see lower returns, history shows "long-term investors are nearly guaranteed to generate a positive return," an industry expert reveals.

Investors should brace themselves for lower returns as market factors including rising interest rates, inflation costs and conflict in Ukraine continue to hamper growth.

But research released by social share trading platform eToro shows this is unlikely to slow Aussie retail investors down.

According to figures released by the broker, Australian investors remain optimistic, with 69% admitting to feeling "quite confident" in their investments, and 59% confirming they have not repositioned their portfolios despite these new economic conditions.

And according to eToro's global market strategist Ben Laidler this could be the right strategy for long-term investors.

"History shows geopolitics often does not have a long lasting impact on global markets," he said.

Laidler highlights that fundamentals for many of these businesses remain solid, with company profits rising, economies reopening after the pandemic while company stock price market valuations are now cheaper following recent falls.

So why will returns fall?

Even with seemingly strong fundamentals, Laidler told Finder that returns will not be as good as in previous years, but highlights they are likely to be positive in 2022.

Calling it the "new investing world" he opines "economic and earnings growth will be lower, and interest rates higher. Stock market returns will be lower, and volatility higher."

However, he points to the opportunity in the new market with assets that were leading the market higher in the past likely to differ to what outperforms in the future.

"These will be focused on more old economy sectors and a more diversified and broader set of global markets," Laidler explains.

Long-term near guaranteed positive returns

Despite facing mounting headwinds, Aussies might be taking a lesson from the past, continuing to invest even in these volatile periods.

According to Laidler one of the main advantages retail investors have over others is time, with especially those newer and younger entrants that flocked to the market during COVID-19.

"History shows that your odds of successfully investing in the very short term is close to a coin-toss, but over long periods of time is near-guaranteed positive returns," Laidler said.

What are long-term Aussie investors doing?

Despite a changing market environment, it appears long-term investors remain resilient to their strategies.

According to the research by eToro, when it comes to long term investment themes for Australian investors, the top picks include:

  • Clean technology 38%
  • Digital transformation 29%
  • Ageing population 29%
  • Growth of the global middle class 23%
  • Robotics and automation 22%

Laidler highlights long-term investors should stick with their strategy.

"Short term market volatility is natural in markets, especially after the run of strong returns that investors have seen in recent years.

"Without taking some risk, there can be no upside return. We believe economic and earnings growth fundamentals are resilient, and valuations are now more attractive."

He also notes the importance of long-term investors continuing to add to their portfolios even in these markets.

"A consistent investment savings strategy or so-called 'dollar cost averaging', allows investors to manage current high volatility whilst also maintaining exposure to the eventual upturn in markets," Laidler concludes.

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