Germans are enthusiastic savers but reluctant shareholders. As a cohort, they demonstrate a counter-productive preference for fixed-income products. This inclination has barely changed even as income has fallen due to the European Central Bank (ECB)’s low interest rate policy.
But we wanted to dig deeper into German investment behavior, so in conjunction with the polling company GfK, we conducted a representative survey of 10,000 German residents. The large sample size meant we could obtain meaningful insights into the relevant subgroups based on age, gender, income, and education.
The survey results suggest that lack of knowledge about fundamental investing issues is sabotaging German savers. They don’t realize their investment objectives cannot be achieved with fixed-income products in a low-interest-rate, rising-inflation environment. Yet, paradoxically, most respondents expect annual returns of more than 2% — and many more than 3% — and they anticipate higher inflation.
Still they remain committed to interest-free current and savings accounts as their preferred investment vehicles.
Maybe the proverbial “German Angst” is a child of ignorance?
The 10,000 participants in the survey were asked not only about their actual investment behavior, but also about their expectations for the future and how they would invest to reach certain objectives. The results show that there is a tendency among certain cohorts to act against their interests due to knowledge gaps and fear.
At the end of the day, wealth accumulation is not so much determined by the size of the wallet as the state of mind.
Four key findings emerged from the survey:
- Asked about saving for the long run, only 23% of the respondents decided to invest their money in equities or equity funds. Almost 60% favored bank accounts or life insurance policies, thus depriving themselves of the chance to accumulate wealth.
- Return expectations did not match the survey participants’ investment preferences. In an environment of near-zero rates for government bonds and bank savings products, 75% of respondents anticipate annual investment returns of more than 2%. Indeed, more than one in five expected yields in excess of 5%.
- At 40%, providing for their old age was the chief savings motivation among 50- to 59-year-olds. For them, it is, of course, far too late to build up assets. Among the young, who have time to acquire wealth, saving for their golden years is top of mind for only 15%.
- Most survey participants see price fluctuations of investment products (41%) as the greatest investment risk. Fear of volatility was especially severe (more than 50%) among young investors. Given their long-term investment horizon, they could more easily sit out short-term fluctuations and watch out for inflation’s return. But they don’t.
Breaking the survey down by demographic, the following results were noteworthy:
- Slightly more than 10% of women would invest in equities or equity funds compared to more than 30% of men.
- The young have a lower preference for equity investments than the old: about 12% to 26%.
- Respondents with less education favored fixed-income over equity investments, with only 10% of those earning around €1,000 per month preferring equities compared to roughly 40% of those earning €4,000 or more.
All in all, the survey points to huge knowledge gaps about the art of investing, highlighting the urgent need for more financial education. Of course that will require both time and commitment before it can make a difference.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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Thomas Mayer, PhD, CFA, is founding director of the Flossbach von Storch Research Institute. Before this, he was chief economist of Deutsche Bank Group and head of DB Research. Mayer held positions at Goldman Sachs, Salomon Brothers, and before entering the private sector, at the International Monetary Fund (IMF) and the Kiel Institute. He received a doctorate in economics from Kiel University in 1982. Since 2003 and 2015, he is a CFA charterholder and honorary professor at University of Witten-Herdecke, respectively.