“Germans are bad at investing”
🔸 Plus: What should Starmer do with $5 billion in bitcoin owned by the government? 🔸 "Inequality" on dating app Hinge 🔸 New pensions bill coming 🔸
Your 2-minute guide to demystifying money and making you richer
The markets, year-to-date
S&P 500: 5,505.00 ⬆️ 16.07%
FTSE 100: 8,155.72 ⬆️ 5.62%
Bitcoin: $67,474.40 ⬆️ 52.64%
GBP to USD: $1.2917 ⬆️ 1.49%
GBP to EUR: €1.1858 ⬆️ 2.84%
The German investment problem
We started Moneyin2 to solve a problem: British people are infamously uneducated when it comes to money, personal finance, saving and investing. It’s almost a point of pride among British people to not know what their work pensions are actually invested in.
The problem is important because it is very difficult to achieve financial security and independence, let alone become wealthy, if you don’t know how money works.
A huge part of the “British problem” is that lots of people don’t want to take risks with their money. They save it in bank accounts instead of putting it to work by buying assets. They confuse “risk” with “volatility”. And thus they miss out on the gains from investing — rendering themselves poorer than they could have been.
One of the best illustrations of the consequences of this behaviour was published on July 17 by Joachim Klement (whose newsletter we highly recommend you subscribe to). His post was titled “Germans are bad at investing”.
Klement is allowed to say that because he is also German.
It’s probably one of the best posts on the consequences of investing — or investing badly — I’ve ever read.
Are the stereotypes true?
The post summarises a study by the Kiel Institute for the World Economy which compares the returns on foreign investments by investors in Germany, the UK, and the US. The study aimed to find out whether the stereotype of Germans being overly cautious with their money was true.
Turns out, the stereotype is real, as shown by this chart of cumulative returns from the foreign investments of Germany, the UK and the US:
What are the Germans doing wrong?
Two things, among others:
German foreign investment goes into “safe” countries that are a lot like Germany — highly developed and with aging demographics. The problem is that these countries have low growth rates and therefore investments in them underperform.
Germans often favour the safety of bonds rather than stocks — and that’s a problem because stocks generally return more than bonds.
Klement adds:
“Germans seem to have a generally lower risk appetite than investors in other countries. Germans are famously pessimistic, always expecting the next crash or bear market and this has significant consequences for their investments … being pessimistic costs you a lot of money in the form of missed returns.”
“And because Germans are so incredibly safety-oriented and risk averse, they work hard but have less to show for it than the Brits or the Americans.”
“Which brings me to my own development as an investor. As an investor, I tended to worry all the time about things that could go wrong. And just like so many investors who worry too much I tended to sell out of a bull market too soon, missing out on a lot of the upside. It was only when I learned to stop worrying and learned to love momentum that my performance got better.”
“This is why I am on a mission to educate investors against the evil that are Cassandras and doomsters and why I insist on being optimistic … Because if you are not, you are going to pay for it dearly, just like the average German does.”
The German problem is measurable
The effect of storing your cash in “safe” places has made Germany measurably poorer than it could have been, the study says:
“In the decade since the 2008 financial crisis alone, Germany could have become about 3 to 4 trillion Euros richer had its returns in global markets corresponded to those earned by Norway or Canada, respectively. This implies a (hypothetical) wealth loss of 102% to 136% of German GDP ... On a per capita basis, this implies an amount of about 41,000 to 54,000 Euros of foregone wealth for each German citizen.”
‘Saving’ is just the beginning
This is why Moneyin2 exists. It is great to start saving. But “saving” is merely the first step:
Are you contributing to your work pension and maxing out your employer’s matching cash?
Is your saved cash earning interest at the bank (where you’ll pay tax on your gains)?
Or is it earning interest in a Cash ISA (where your gains are free of tax)?
Or are you — even better — putting that money into a Stocks & Shares ISA where your investment gains are, again, free of tax?
Are you using a SIPP to get matching cash from the government toward your retirement?
Are your savings invested in assets — such as a broad portfolio of stocks — that will work for you?
If you’re not moving up this ladder of increasingly sophisticated ways to make your cash work for you … you’ll end up like Germany.
Moneyin2 in Partnership with Quartz
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And for dessert …
The Labour government has proposed a new Pensions Bill. The law would make performance comparisons between funds and force under-performing ones to be wound up in favour of better ones.
The British government owns $5 billion in bitcoin, mostly seized from criminals. Why the heck didn’t we use this before now?!
Someone unearthed the blog post Hinge deleted in which a Hinge engineer explains the level of “inequality” between men and women on the platform.
Increasing your work pension contribution by 2% could enable you to retire three years earlier, compared to saving at the minimum auto-enrolment rate, according to Standard Life.
Citi exec claims she was fired because she refused to lie to the board about how far behind the bank was on meeting its data governance goals.
The Moneyin2 Guide to Wealth
The Moneyin2 Guide to Wealth will get you the biggest return on your savings by maximising cash matches from your employer, free cash from the government, and shielding your investment gains from tax. It takes you step-by-step through the world of pensions, SIPPs, ISAs and ETFs — all in plain English.
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