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The Federation of European Independent Financial Advisers

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On many occasions, lay investors have a tendency to confuse banking and property revenues as useful gauges of the overall strength of the investment economy. But, however healthy (or unhealthy) these two sectors appear, this should not be allowed to cloud the investment opportunity available to you via your expat financial services manager.

This is why we should not be overly concerned that returns in banking investments currently sit below historical averages – what this potentially marks is simply the residual impact of the 2008 financial crisis and the fact that banking and the wider investment economy have evolved with the advent of new and disruptive players in the finance sector.

For example, a new piece of research by Accenture showed that in 2005 there were 24,000 firms operating in the worldwide banking industry; today this stands at around 15,000. But this alone cannot be seen as a true reflection of the current climate because during the same period we have witnessed the dawn of 600 FinTech firms, 1,900 payment institutions, 700 new banks, and 400 subsidiaries of existing banks – there has also been some consolidation in the area.

Despite this, financial consultancy firm McKinsey & Company report that there has been a steep decline in banking revenue, down to $275 billion in 2017 from $345 billion in 2007. Lower equity returns are a major factor in this, particularly for European banks, which, according to European Banking Federation figures, stood at 5.6% last year – around half the level recorded before the last global financial crash.

Likewise, property market returns are also another challenge to investors and their wealth managers, with construction and real estate returns down significantly on their pre-crash levels.

It would be easy to read declining banking and property returns as all bad news, but the reality is starkly different. We must remember that we were in the grip of both a banking and property investment bubble at the beginning of this century; it is far better to, as McKinsey puts it, be stuck in neutral than it is to be burning up petrol in top gear while hurtling headlong on the freeway to nowhere.

Hopefully, these more modest outlooks are good news for investors in the long-run. As long as their wealth managers consider the broader picture and all the opportunities for growth, there is lots of room for long-term gains. If history has taught us anything it is that diversifying investments across multiple asset classes is the surest way for most to achieve their investment and retirement goals; for many, banking and property investments will still remain an important part of this, but they are not the infallible golden goose of investing. In fact, the golden goose doesn\’t exist and the more we are reminded of this, the more likely we are to avoid false dawns and their inevitable crashes.

​​​​​​​​​The above article was kindly provided by Blacktower Financial Management Group and originally posted at: ​​​​​​​​​​​https://www.blacktowerfm.com/news/642-banking-and-property-returns-not-indicative-of-wider-picture/