For several years now, we have been living in a low-interest trap. Although you can lend money on favorable terms, you can hardly get interest on overnight money and treasury bonds. This is really hard for the German savers, because they are highly risk averse and most of their savings are put into such investments and thus loses money.
The paradox:
The German saver doesn’t want to lose his hard-earned money and that’s why he puts it in seemingly secure investments with which he then creates exactly what he wants to avoid. Already in 2010, each German household lost 1,300 €, as Comdirect has calculated, overall 51 billion Euros. In a recent study, the DZ Bank comes to the conclusion that the German savers lost 344 billion Euros in interest just because of the low interest rates from 2010 to 2016. A remarkable amount of cash.
What’s the problem?
Although it’s easy to forget sometimes, a share is not a lottery ticket …it’s part-ownership of a business. (Peter Lynch)
Confusing speculation with investment is always a mistake. (Benjamin Graham)
The PROBLEM of this fact: The German saver doesn’t feel this loss of his money, because in particular it is a loss of purchasing power. This problem is exacerbated by the now rising inflation. The real interest rate for overnight and fixed-term deposits is now already at -1.6%, with a downward trend. This could mean, according to Comdirect, that every household loses an average of 14,000€ in the coming years, which corresponds to savings of 3 years.
The “Global Wealth Report” once again clearly presents the loss of German savers. While German households’ savings grew by 17.4% between 2009 and 2015, Americans doubled their wealth, while the Swedes even managed to grow theirs by 130%. Respect.
The reason for this investment success is quite simple: the number of households in these countries that invest in shares is more than three times as high as in Germany. While approximately 30% of Americans and Swedes invest their money in shares, only 10% of Germans do. Actually, a shameful result.
The question is:
Are stocks as bad as the Germans like to believe? Certainly, shares are more risky than fixed-income government bonds, at least if the bonds are issued by states like Germany or the USA. With Greek bonds, it may look quite different. On the other hand, shares are the most profitable investment at all, and many investors, even many of those who invest in stocks, don’t realize that there are companies behind every stock which are operating and generating value. Many of the people who refuse to invest in shares are working in one of these companies and producing products that we are happy to consume, or which we simply need.
If you buy shares and invest your money in these companies, you will participate in the increase of the value, which over time reflects in the market price of the share. Just as the price of a good wine increases, the older it gets, the price of the share for a company increases, the more value it produces. The saver should not forget about that. Even if the price of the stock goes up and down day by day. If you’re a long-term orientated investor, these ups-and-downs are something you can ignore.
