The trend is positive, but the figures must be seen in perspective. There have been significantly more stockholders in Germany in the past. Shortly before the turn of the millennium, nearly 13 million Germans owned stocks. But during the crash period from 2000 to 2003, several million savers made a typical rookie mistake: They closed their security accounts at low prices and left the stock market. Had they simply waited three to five years, they would have reached double or triple the sales price on a simple index fund on the DAX, the leading German index. Even a ‘sucker’ who purchased during the crisis year in 2003 could have multiplied his money by around six times over the past 15 years. But dropping out of the stock market was the worst decision one could have made at that time.
So why are most German savers so afraid to avoid what is proven to be by far the best and most successful financial investment? One reason is that they have a history of negative experience. Several events happened, particularly in the first half of the 20th century, that destroyed the assets of the older generations. Remember the two world wars, the global economic crisis, hyperinflation, or the currency reform. These shocking events led to an overly cautious investment strategy with a preference for cash and bank deposits, handed down from generation to generation.
But this reaction is false. While financial assets (cash, bank deposits, government bonds) were wiped out several times during the crisis mentioned before due to bank failures, state bankruptcies, inflation etc., material assets such as real estate and equities largely preserved the assets of the owners. As a holder of material assets, all one had to do was wait until the prices on the real estate and stock markets recovered after the crisis.
Another weak point that contributes to the lower number of stockholders in Germany compared to the rest of the world, is that there is little financial education in schools and for professionals. The majority of Germans do not know enough about money and financial matters to make grounded decisions. For example, many savers overlook the compounded interest effect of attractive investments and underestimate the interest charges involved in credit financing.
One last but important point is that, in part due to the influence of the finance industry lobby, the state requires unilaterally expensive insurance products. By contrast, affordable and transparent stock and equity fund investments are promoted in other countries as fiscal incentives within private pension plans.
After reviewing the party programme in the German federal election campaign in 2017, I gave up hope of any progress on this score in Germany in the near future. Savers will have to take matters in their own hands. There are plenty of opportunities to acquire financial knowledge at a reasonable price, or even for free. For example, a visit to the stock exchange along with a presentation is an interesting and informative way to begin. The stock exchanges in Frankfurt, Munich, Düsseldorf, Hamburg and Stuttgart offer comprehensive information programmes for all levels. It is well worth a visit.
About the Author:
Since 2002, the analyst Rolf Morrien is editor in chief of the investor service "Der Depot-Optimierer" and author of the books "Wie lege ich 10.000 Euro optimal an" and "Börse leicht verständlich".