It has been taking place at the end of October for 98 years: World Savings Day. In a time of high inflation rates and low (savings book) interest rates, the question arises as to whether this tradition is not more of a dusty relic. That’s why we’re burying World Savings Day in 2022 and launching Sparbuch 2.0!
Who doesn’t know the pictures of children with bright eyes and a bulging piggy bank in their hands? They always bring their saved money to the bank on World Savings Day in the last week of October – often at a specially set up children’s counter. The savings are credited to the savings account and – depending on the amount – the children can choose a “present”: cuddly toys, balloons, games. On October 31, 1925, the savings banks called for the first World Savings Day, which was also intended to encourage adults to save. Since then, the campaign has taken place every year at the end of October.
The aim of all savings is to build up reserves, primarily to preserve assets, and ideally the assets should also increase. It used to work like this: you take your money to the bank and get interest on it. But times are changing: According to Statista, the average interest rate on savings account deposits was 0.1 percent in 2021. After 4.6 percent in 1980 and 2.3 percent in 2008, it has been steadily downhill since then. There can therefore no longer be any talk of positive interest income.
In 2022, interest rates rose again slightly: the leaders in the FOCUS online overnight money comparison are again offering more than one percent per annum. Unfortunately, this is far from enough to protect a savings account from inflation. Because it literally exploded in the current year. In September 2022, inflation in Germany was ten percent. With a savings account interest rate of 0.1 percent, with which many big banks still fob off their customers, this is a fatal loss. The real interest rate is minus 9.9 percent – savers lose almost ten percent of their purchasing power every year.
On the one hand, the Germans are considered to be “financially grumpy”. They shy away from dealing with capital investments and wealth planning. The realization that they are not making enough of their money often comes too late. Namely when the gaps in old-age provision become visible.
In addition, there is widespread skepticism that stocks and the stock market are risky and only for professionals. But there is hope: in 2021, the gross financial assets of German households grew by 8.5 percent despite the measly interest rates, which was the strongest growth since the turn of the millennium, reports the insurance group Allianz in its Global Wealth Report 2022. Germany was even higher than that Western European average (plus 6.7%). According to Allianz, the main reason for this extraordinary development lies in the securities asset class, which increased by an incredible 20.5 percent; driven by rising stock prices.
German private investors acquired shares and investment funds worth 135 billion euros in 2021, an increase of 53 percent compared to 2020. The share of capital market products in fresh savings increased to 35 percent, while new payments into bank deposits fell quite significantly by 31 percent to 147 billion euros back. However, savings deposits are still the most popular form of savings in the country. Another 100 billion euros flowed into insurance and pensions.
It is to be hoped that this trend will continue, because financial experts agree: Private investors can only avoid inflation with real assets. And in view of stagnating real estate prices, this includes above all equities. Shares are tangible assets because they represent a stake in a company. This includes machines, materials, buildings or even patent rights. If the company is doing well and is successful, its value (share price) increases and the shareholders usually receive a distribution of profits in the form of a dividend.
Short-term fluctuations in the stock price are normal and are irrelevant in the long term. It is crucial that the company’s business model works and that profitable management is possible. Not only today, but also in ten or 15 years.
The long-term success of stock-oriented wealth accumulation is undisputed and can be historically proven. This is exemplified by an investment in the DAX. The year of purchase and the average annual return on a sale in 2020 are listed:
The figures come from the yield triangle of the Deutsches Aktieninstitut. With an investment horizon of 30 years, an average of 8.8 percent per year was achieved. These data impressively show that equities, if held for a sufficiently long period, deliver an attractive return with limited risk at the same time.
If you want to further limit the risk, invest your money in a whole basket of stocks: ETFs (Exchange Traded Funds). ETFs are funds that contain a whole collection of stocks and are traded directly on the stock exchange – without expensive advisors or intermediaries. The composition of the underlying index decides which stocks are included in an ETF, which is why they are also called index funds. The more stocks an index contains, the greater the asset diversification and therefore the smaller the risk. A well-known index, for example, is the MSCI World stock index – it contains the stocks of a good 1,600 companies from 23 countries.
In this way, ETFs create a charming safety net in the portfolio. In addition, they are extremely inexpensive and flexible to use and are therefore also suitable for monthly savings plans in small installments.
Building wealth with ETFs is not rocket science. But: Without any knowledge, there is a great danger of falling into the emotional trap of fear and greed. Above all, novice investors, but also experienced investors, often make irrational investment decisions, which subsequently does not lead to the desired success.
Digital asset managers, so-called robo advisors, offer a promising way out of this situation.
Digitization has long determined the topic of asset accumulation. Digital asset managers (robo advisors) are sophisticated programs that put together and manage an investment portfolio that suits you according to individual specifications and preferences.
Digital asset management requires a high level of expertise and experience. The company investify cooperates with the world’s largest asset manager BlackRock to ensure exactly these two central aspects. The software used is based on artificial intelligence and has already received various awards.
investify puts together a tailor-made portfolio for you, based on two pillars:
Getting started for investors is easy: after registering/logging in, go through the following steps:
After that, you can get started with the free app, namely
The cost structure is as simple as it is transparent: one percent of the invested assets is incurred each year (from 100,000 euros 0.8 percent). In addition, there are the product-dependent costs, which are around 0.16 percent p.a. for the basic investment and between 0.15 and 1.60 percent p.a. for the theme investments. The capital gains tax is paid directly to the tax office.
The investor accounts are managed at Baader Bank, based in Unterschleißheim, investify itself has a license for financial portfolio management. The security of the deposits is thus guaranteed.
The savings book is dead! This insight is more than overdue. Use the World Savings Day to say goodbye to your savings account and start into the future of digital wealth accumulation. Saving – especially for old age – is more relevant than ever. Only the HOW has to change in view of low interest rates and high inflation rates. Digital asset managers like investify are a good and important step in the right direction.
