German investors' apprehension towards stocks leads to substantial financial losses.
In Germany, investing in stocks is often overlooked by savers, who instead opt for traditional savings methods like checking accounts, as revealed by a study conducted by DZ Bank. This preference for safe investments means missing out on substantial profits that could have been made through stock investments.
As per the study, approximately 2.2 trillion euros, or about 23% of personal wealth in Germany, is currently held in sight deposits or cash, primarily in checking accounts that offer minimal returns. By mid-2024, insurance (nearly 27%) and other bank deposits (around 13%) are among the leading holding categories, followed by investment funds and bonds. Stocks, which accounted for only 9% of wealth, saw a recent decrease.
The study points out that this trend represents a significant opportunity loss, considering the DAX's record high of over 19,600 points in recent times and a year-to-date increase of over 16%.
To illustrate the potential gains from stock investments, DZ Bank ran a hypothetical simulation. The simulation assumes that households keep four net monthly salaries as an emergency reserve, which amounts to around 11,760 euros per household given their average net income of around 2,940 euros per month.
The simulation begins with a one-time shift into stocks. In each subsequent quarter, the required liquid funds are invested in sight deposits and cash to maintain the emergency reserve, while the remaining funds are invested in stocks. Funds in investment funds, insurance, bonds, etc., remain unchanged.
Large unrealized investment potential
Results: The study finds that private wealth in Germany would have grown from 2011 to mid-2024 to 4.6 trillion to 9.2 trillion euros in the simulation. Actual growth was 5.3 trillion euros to around 9.9 trillion euros, representing a gap of over 715 billion euros or almost 8% according to the study.
While stocks in the simulation were more exposed to market volatility, they had stronger growth over the observation period, despite temporary setbacks due to the coronavirus and Ukraine crises.
DZ Bank acknowledges that not all households may be able to maintain a fixed buffer and invest the rest in stocks, such as older people, lower-income households, and those planning major purchases. However, the study highlights a significant unrealized investment potential of over 2 trillion euros, allowing many households to invest in stocks without sacrificing deposits or bonds while maintaining sufficient liquidity. Standard investment advice, such as starting early with regular investments, diversifying through funds, holding stocks for the long term, and not putting all one's money into stocks, still applies.
Despite the preference for safe investments among German savers, neglecting stock investments could result in missing out on substantial profits. As highlighted by the study, the DAX's record high and year-to-date increase indicate a significant potential for growth in the economy, which could have been tapped into through stock investments.
