savers waver

Investors Trapped In Zero-Interest Limbo

  • Why it matters

    Why it matters

    Experts believe the current low interest-rate environment is historically unprecedented. Nevertheless, Germans show little inclination to adapt to the new environment with their own investments.

  • Facts


    • According to a Forsa survey, more than three-fourths of all German investors don’t know how or where to invest their money.
    • Investors are apparently unwilling to take risks with most leaving their money in their bank accounts.
    • Many older people hold stocks for the long term and also care about dividends.
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Low interest rates have left many investors at a loss. Source: Getty

In Germany, a country that likes to save money but no longer has an incentive to do so, these are the worst of times. In the current zero-rate environment, more than three-quarters of Germans don’t know how or where to invest, according to a survey by Forsa commissioned by Targobank.

Data from the poll, which was conducted in late November and earlier this month, provides the most up-to-date picture of the uncertain mood of German investors.

“The low interest rates have left many investors at a complete loss,” said Alfredo Garces, a spokesman for Targobank.

Germans tend to be more risk-averse than Britons or Americans, and many still refuse to buy stocks, considering them too dangerous.

Now, with interest-bearing bank accounts no longer bearing interest — and in most cases losing value when inflation is factored in — residents of Europe’s largest economy are on the sidelines.

In the survey, nearly two-thirds of respondents agreed with the statement: “Before I make a wrong decision in investing my money, I prefer to leave everything as it is and wait to see what happens.”

Most are leaving money in bank accounts, though Mr. Garces feels this fear-driven behavior is not a strategy to be recommended.

The respondents’ basic attitudes about saving also fed into their wait-and-see approach. A big majority described their investment strategy as conservative and security-oriented.

This reinforces investors’ caution when they believe they are losing money through falling interest rates. As Union Investment, a German fund Manager, found out in its survey, many savers even expect to pay penalty interest on bank accounts.

In a survey conducted by investment company of the Association of Cooperative Banks, Germans showed little inclination to take on more risk and adapt to the new environment. This is remarkable, because many experts believe the low-rate environment is unprecedented and could be with us for the forseeable future.

Yet, something perceptions are beginning to change. The investors questioned have at least dialed back their own expectations.

“In earlier years, customers imagined they could get a safe investment with perhaps an 8-percent return, but today they already consider 2 to 4 percent as attractive,” said Mr. Garces, referring to the survey of private households.

A look at the yield on the 10-year German government bond, or bund, as a trend indicator for the interest-rate situation underlines this development: The average yield of more than 4 percent eight years ago has declined to almost zero. Many bonds with a top credit rating are still yielding negative returns. In such cases, a buyer is certain to lose money by holding the bonds until maturity.

The Targobank results also expose contradictions. Though they are at a loss over low interest rates, more than two-thirds of those surveyed consider themselves well informed about investment options. A slightly higher proportion said they consult with a bank adviser and had accused financial institutions of only offering products that make the most money for the bank.

“Our impression is that many older people hold stocks for the long term and also care about dividends.”

Spokesman for ING-Diba Bank

It’s a slightly different picture with investors who invest solely in securities. On Monday, ING-Diba Bank published an analysis of their customers’ deposits as of mid-October. It showed that the proportion of investments in stocks had grown, at least among this group of securities-savvy investors. According to the bank, this proportion has grown by one-and-a-half percent a year in the last three years.

The proportion grows with advancing age. While the proportion of stocks is 59 percent among investors up to 35 years of age, it increases after that, reaching a high of 65 percent among those over 76. “Our impression is that many older people hold stocks for the long term and also care about dividends,” said a spokesman for ING-Diba. He called it “a policy of a steady hand.”

This behavior could be worthwhile if one accepts the latest long-term forecasts by money experts. For instance, the augurs of Dutch investment fund Robeco estimate stock returns in the coming years at significantly more than 5 percent annually. In contrast, many bonds are expected to see losses, especially among issues with top credit ratings.

Behind this is the expectation that the boom in the bond market, already underway for more than three decades, could come to an end soon. Some already see the signs in the yield increases of recent weeks. If the tendency becomes firmly established, bondholders could see large losses in their accounts. Robeco chief strategist Lukas Daalder believes this is already the case. He uses the yield on the 10-year German federal bond as a barometer, saying: “Within the next five years, the interest rate will rise from a low of just under zero to three percent again.”

Such results are not that far removed from the very long-term results from the past, particularly the stable revenue advantage of stocks over bonds and bank deposits. German finance professor Moritz Schularick confirmed this recently with a calculation for the industrialized countries over about one-and-a-half decades. According to his data, stocks yielding real annual returns of just under 8 percent was good, adjusted for inflation. Bonds reached one-and-a-half percent. Short-term, fixed-income investments barely made it above zero.

The difference between perception and reality among investors is probably a reason why Targobank expert Mr. Garces said: “Demand for professional advice is increasing rather than declining.”


Targo german investors


Ingo Narat is an editor with Handelsblatt’s finance section. To contact the author:

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