Investment mistakes Germans are saving all wrong

With more than €2 trillion squirreled away in savings accounts, the average citizen still accepts terrible returns, ignoring how interest rates have hovered around zero for nearly a decade.  
Quelle: DPA
The German savings model is broken.
(Source: DPA)

German savers are (still) doing it all wrong. A new survey suggests that, after a decade of rock-bottom interest rates, most still think savings accounts are the best place to put their nest egg.

Savers are estimated to have €2 trillion ($2.3 trillion) tucked away in bank accounts, bonds and fixed deposits. Although returns on these assets is close to zero, only one in three German savers said they had already moved money because of poor returns. The survey was conducted in October on behalf of the Flossbach von Storch Research Institute, an economic think-tank run by German asset managers Flossbach von Storch.

Asked where they would invest money for a child or grandchild, barely a quarter of respondents said they would go for stock market investments, with well over a half opting for savings accounts or bond portfolios.

The survey echoes similar results in previous studies. This summer, asset manager Union Investment found that a mere one-tenth of savers would consider moving their money to make a better yield. Equities represented only the fourth most-popular choice of investment vehicle.

Cognitive dissonance

The new survey confirms a startling disconnect among German savers. Three out of four expect returns over 2 percent. But most favor investments which, in fact, offer around half a percent annual growth. In other words: The numbers just don’t add up.

In addition, most Germans claim to be saving for old age. But at this rate, they will find it almost impossible to build capital to boost retirement income. On current returns, only real assets like shares or property can fulfill the objective.

Projections of future asset appreciation appear to back up this view. Dutch asset manager Robeco calculates that, over the coming five years, zero-risk assets like sovereign bonds will lose money. But equities promise returns of around 4 percent per annum, regardless of short-term fluctuations. 

Rich and educated do it better

The Flossbach survey drills down into the data, creating a more detailed picture of German savers’ attitudes. Men tend to lean more towards stock-market investments, it suggests, while women are disproportionately drawn to more traditional savings vehicles. Educational level and overall net worth also correlate to a greater tendency to put money into stocks and shares.

Germans’ leading financial fear is asset price fluctuation, suggests the Flossbach data, followed by inflation, the biggest worry of around one-third of those questioned.

Here too, there are discrepancies between savers’ desires and their actions. On the stock market, long-term gains tend to outweigh short-term fluctuation. And inflation is a far greater threat to fixed-income assets like bonds than it is to equities.

The Flossbach report highlights a final discrepancy, impacting the ownership of German industry. While the country's savers stubbornly keep their money in low-return savings vehicles, the domestic stock market remains largely in the hands of foreign investors.

The survey suggests that if just half of German savings were switched to German equities, the entire DAX-30 index could be brought back into domestic ownership.

Ingo Narat is an editor with Handelsblatt's finance section. Brían Hanrahan adapted this article into English for Handelsblatt Today. To contact the author: [email protected]