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How stock phobia is damaging the German economy

2019 was surely not a calm year in the economic sector and on the financial market. The car industry crisis, the trade conflict between the U.S. and China, the weakening economy in Germany are all weighing heavily on investors. However, the Dax has risen by almost 23% since the beginning of the year, Dow Jones and S&P 500 gained 19% and 24%, respectively, during the same period.

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As 2019 comes to a close investors have a lot to reflect on. The long-running crisis in the car industry, the running trade conflict between the U.S. and China and a weak German economy have conspired to spread concern amongst investors around the world. 

Nevertheless, the Dax has risen by almost 23% since the beginning of the year. Profits are similarly high in the U.S., where the leading indices Dow Jones and S&P 500 gained 19% and 24%, respectively, in the same period.

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However, the German savers contribute little to these gains. A study by the Frankfurt Stock Exchange and the Frankfurt School of Finance and Management makes it clear that Germans continue to shy away from risk on the stock market. It shows that non-shareholders spontaneously associate the term “stock” with terms such as risk, uncertainty and loss.

As a rule, the longer you invest your money on the financial market, the lower the risk of loss. For example, there is no historical period over 15 years in which the Dax has reported a loss. However, non-shareholders are barely aware of that.

38% of those surveyed for the study correctly indicate that the stated one-year loss probability is greater than the ten-year loss probability. Almost as many, 35%, said that the probability of making a loss over ten years is greater than a period of only one year. 62% of share owners know that the longer they invest, the lower the risk of loss.

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Money on the current account means losses

“The high fear of loss in combination with a statutory pension in the back of their minds – even if it is very low – ensures that many Germans avoid the stock as a retirement provision instrument,” Robert Halver, Head of Capital Market Analysis at Baader Bank, told Business Insider. “The state is not taking appropriate measures to bring the stock a little closer to savers,” he complained.

Instead, there are plans, among others by Federal Finance Minister Olaf Scholz (SPD), for a financial transaction tax to be introduced in Germany on stock purchases and sales. That tax would place an additional burden on savers who want to provide for their old age with stock. An answer by Olaf Scholz in an interview with “Bild” in September also sent a completely wrong signal. There he said: “I put my money on a savings book, so even on the current account and there I get, like with all others, no interest.”

It’s even worse: money on a savings book, current account or in bonds doesn’t just mean no interest at the moment, but money are even becoming less and less valuable. Even if inflation is not high at 1.1% in November, the purchasing power of money continues to decline month by month. “You don’t see it at first glance, because $110 (€100) is still $110 (€100). But many Germans prefer to accept this loss of purchasing power instead of making long-term provisions for old age on the stock market,” said Halver.

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(Featured image by Christian Dubovan via Unsplash)

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First published in BusinessInsider, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Eva Wesley is an experienced journalist, market trader, and financial executive. Driven by excellence and a passion to connect with people, she takes pride in writing think pieces that help people decide what to do with their investments. A blockchain enthusiast, she also engages in cryptocurrency trading. Her latest travels have also opened her eyes to other exciting markets, such as aerospace, cannabis, healthcare, and telcos.