Why are 99 people risk averse

Stock market: why are Germans so risk averse?

For most Germans, the stock exchange is above all a place with many risks. "I do not trust the stock markets", "I fear selecting stocks that perform worse than others", "I am afraid that I (...) will lose a large part of my invested assets" - in a study presented in Frankfurt, people named - no matter whether young or old - especially such reasons why they don't put money in stocks.

Overestimated risks?

The elaboration by researchers from the Frankfurt School of Finance & Management and the Goethe University Frankfurt, based on a representative YouGov survey, also showed, however, that two thirds of non-share owners think they have neither enough money nor sufficient knowledge to be listed on the stock exchange invest. Is that why the risks of stocks are overestimated? Or is the risk actually as great as many think?

Difficult to explain

“In fact, risk and return are inextricably linked, and anyone who invests in stocks must be prepared to withstand fluctuations in asset accumulation,” write the authors of the study commissioned by Deutsche Börse. "If you calculate the risk of an equity investment based on historical data, it is difficult to explain why many people in Germany completely shy away from this risk."

Paid out in the long term

The Deutsches Aktieninstitut calculates that long-term savings in shares have generally paid off over the past 50 years. Even those who got involved in the financial crisis of 2008 and held the shares until the end of 2018 achieved an average of 8.2 percent annual return over the ten years.

"A developing country"

Regardless of such statistics, Germany is “a developing country” when it comes to equity culture, as Nicolas Nonnenmacher, division manager at Deutsche Börse, complains. According to figures from the Aktieninstitut, around 10.3 million citizens in Germany over the age of 14 owned shares in companies or equity funds in 2018. This is the highest level since 2007. Nevertheless, with a shareholder quota of a good 16 percent, Germany remains miles away from other industrialized countries. In the USA, for example, it is over 50 percent.

But because the pension is anything but secure and people are required to make private provisions for old age, many experts are concerned about the reluctance of Germans. According to Michael Grote, Vice President of the Frankfurt School, opportunities to build up wealth are being wasted. “People don't know how little they need to know,” says Grote. “You think you have to be a great expert to invest in the stock market. But it's much easier. "

Wide spread

Christine Laudenbach from Goethe University, co-author of the study, makes similar observations: “Many also believe that they have to read and understand the company's balance sheets carefully.” According to the scientists, this is not necessary at all. Because there are a number of relatively inexpensive options for broadly diversified and long-term investments in stocks - for example via fund savings plans or so-called ETFs, which map a certain index such as the German leading index Dax. One problem with this: "There are so many products that beginners are a little overwhelmed," says Laudenbach.

Often through family or friends

But how can German citizens be convinced to buy shares and how did they get there? Sometimes this is relatively simple, as the study shows. Almost 30 percent found stocks because family members or friends own stocks and because they were talked about. Or because a share portfolio was transferred to them through an inheritance, for example.

“Nobody should take a risk that he or she does not want to take, that causes a bad feeling or even causes sleepless nights,” write the scientists commissioned by Deutsche Börse to search for clues to the “mystery of equity market participation in Germany”. "But perhaps it is worth considering whether the risk associated with the stock market is an overestimated risk."

Published in the Economics section