When it comes to their money, the federal citizens rely on caution
Share prices are rising relentlessly. In New York the Dow Jones Index surpassed the 17,000 mark for the first time in its 135-year history. And Germany’s benchmark index, the DAX, likewise set a historic new high. Stocks, it seems, belong in every investor’s portfolio.
But the reality is different. Most Germans still put their money into savings accounts or other, supposedly safe investments. They know perfectly well they are getting hardly any interest, and that even the low inflation rate is leaving them with an effective loss. This “creeping expropriation,” as critics call it, has existed since 2011. Yet more than half of all Germans openly admit they don’t want to be bothered by their financial affairs and nearly 40 percent believe they know nothing about them anyway.
No risks
When it comes to money, Germans simply don’t want any risks, as nearly all surveys into the matter have found. But even the professionals are groaning, especially those selling life insurance, who don’t know how they could still achieve the yields they had promised their clients in a stubbornly low interest environment. The customers need those yields to accumulate an adequate financial cushion for their old age.
Even without the low interest rates and a lack of alternatives, Germans have always been suspicious of stocks. Not even nine million people take part directly or indirectly on the stock markets. In the US, by comparison, more than half of all households own corporate shares; at the height of the Internet boom that figure was even 67 percent. The reason is Germans’ innate need for security, say skeptics and point out that twice in the past 15 years, share prices have taken big falls.
What’s more, negative examples keep piling up that further heighten the German people’s awareness of the risk. Prokon, a builder of wind farms, collected 1.4 billion euros from investors, then went bankrupt. These people’s investments are, ahem, gone with the wind. By comparison, the near-zero yield from German government bonds sounds pretty solid.
Arguments in favor of investing in stocks, on the other hand, are hardly heard at all. Many people in Germany still regard stocks as speculative paper. And yet hardly any other financial instrument is as closely tied to the real economy. A stockholder buys a piece of a company. Anyone who likes to drive a BMW or Mercedes Benz and trusts the company’s management to keep building good cars can take part in this future by buying shares. And should the managers take the firm in the wrong direction, the investor can always sell his or her shares. But owning shares demands patience. Not every fall in price is a reason to sell.
Foreign investors
The statistics tell a clear story. Since the financial system’s near-meltdown in the wake of the Lehman Bros. collapse in 2008, the DAX has gained more than 150 percent in value, an amazing return. But looking to the past is little help, German savers say, and ask themselves, rightly, whether they might have missed a big opportunity. Certainly, the German economy has proven exceptionally resilient during the crises of recent years. It was mainly foreign investors who recognized that. The result has been that more than half the capital of Germany’s DAX companies is owned by foreign stock investors. But aren’t share prices already too high? Are further increases still possible?
The retirement nest egg
The question should actually be, is there any alternative? Germans have handed more than 70 percent of their private wealth to banks and insurance companies, or they hoard it as cash. They trusted their financial professionals to make sure their assets at least didn’t shrink. But the situation has gradually changed, and adapted more and more to US circumstances. For decades, Americans have had to build up private capital to supplement their Social Security pensions. That explains the high percentage of stock ownership in the US, where pension funds used to handle people’s retirement benefits but, since the 1980s, employees have been given more responsibility in managing their own funds. In Germany, these incentives do not exist. Companies also do too little to offer themselves as an investment to the people. That perpetuates the impression that investing in shares is something only for professionals who negotiate the best prices among themselves. And the savings account remains the most popular means of taking one’s hard-earned money and preparing for a rainy day. That’s how Germans save. ■
Klaus Dieter Oehler has worked for more than 20 years as a financial editor for the daily Stuttgarter Zeitung