What Is an Expected Return?

The expected return is also called the expected return, which refers to the return that can be obtained based on known information if no unexpected event occurs. Often future asset returns are uncertain. Uncertain returns can be represented by a variety of possible values and their corresponding probabilities. The weighted average of the two, the mathematical expectation, is the expected return on the asset.

expected profits

expected

Assessing a company's expected returns is usually done in three steps:

First, the company's income status and

Identify risks when choosing financial products

Many wealth management products launched now look like the yield is higher than the deposit rate, but financial experts remind you to pay attention to the words "expectation" in front of these yields, which means that there is no guarantee that the yield will be obtained in the end. Therefore, the purchase of such products must be carefully considered.

Actual earnings are difficult to match "expected"

Many ordinary people have a special trust in the bank, believing that as long as the products launched by the bank can meet expectations, it is not the case. Earnings risk. As of October 2006, the China Banking Regulatory Commission also issued a consumer warning: Expected earnings are those that banks believe they will receive under "normal" market trends. None of the banks has a guaranteed payment obligation, and the final actual rate of return may deviate from the highest or expected rate of return. Before buying, individuals should ask the bank to provide a convincing basis for estimating the expected rate of return.

The reason that the CBRC issued such warnings one after another is not unfounded. With the maturity of the personal wealth management market, various wealth management products are coming. The biggest selling point is the expected return, which is much higher than the bank's savings rate over the same period. However, the actual return is not optimistic. In the first half of the year, a number of linked wealth management products may ultimately guarantee actual returns. Even if the ordinary people think that it is a relatively safe fixed-income wealth management product, the actual return may be significantly lower than expected. For example, in 2005, there was a product with an expected fixed income of 2.50%. The final actual return was only 0.75%.

Little-known "expected" risks

The reason why the expected return rate and the actual return rate have such a large deviation is that a large factor is that the wealth management product itself has many risks that ordinary investors do not know.

Looking at personal financial products, there are two main types: fixed income and linked financial products. Fixed-income wealth management products seem relatively simple. Banks often give the specific amount of expected returns on the product's promotional materials, but in fact the banks use the money to invest in the central bank's bills business, and with the bank's adjustments to deposit provisions several times Gold rate, the yield of these notes will definitely change, and will eventually affect the actual return.

As for linked wealth management products, more complex risks are also greater. Looking at some linked financial products, they are often linked in a range, which leads to a large increase in uncertain factors, not because the more the linked products rise, the greater your earnings. Some foreign exchange wealth management products linked to exchange rates also have hidden risks. For example, some US dollar wealth management products are linked to the euro, and the earnings and principal after maturity are both in euros. Fell, investors still incurred a hidden loss.

Look at the terms and identify the risks

The Shanghai Banking Regulatory Bureau has specially notified the personal wealth management business complaints accepted since 2005, and disclosed the 7 major risks of bank wealth management products. For investors, the key is to clearly identify the relevant provisions of the bank wealth management products risk.

So, can this expected return be changed to a definite return? Can commercial banks sell personal wealth management products to customers as "guaranteeing bottom guarantees and guaranteed returns"? The "Interim Measures for the Management of Commercial Banks 'Personal Financial Management Business" and the "Guidelines for the Management of Commercial Banks' Personal Financial Management Business Risk" issued by the CBRC have stated clearly that they can, but at the same time stipulated that commercial banks "must not promise to their customers unconditionally a guaranteed rate of return higher than the savings deposit interest rate for the same period ". Most banks' financial management is still in the "guarantee" stage. I believe that with the fierce competition in the personal financial management market, the "income-guarantee" products will surely replace the expected earnings. At that time, investors still need to see the bank's auxiliary conditions.