Investment in Germany: Safety First, But Many Fall into the Gray Capital Market | Financial Guide

Low interest rates are putting pressure on investor satisfaction. While two years ago, 47 percent of savers stated they were satisfied with the performance of their investments for the past year, currently only 38 percent are. This emerges from a survey by the market research company Kantar TNS on behalf of the Banking Association. According to the survey, the number of those who preferred to spend their money rather than try to increase it grew simultaneously in recent years. Because in the years 2012 to 2014, still less than half of respondents invested no money at all. The group of non-investors, however, has now grown to over 50 percent.

The Safety Paradox: High Demand for Security

A higher risk and thus associated possible higher returns are mostly rejected. After all, 28 percent of respondents can "rather not" imagine taking a higher risk for a higher return. Even higher is the number of those who can "not at all" imagine a higher risk: 58 percent completely reject more risk for a higher return. A traditionally low investment risk thus remains the "non-plus-ultra" for at least 86 percent of respondents when choosing their investment strategy.

A current survey by the Marktwächter team of the Verbraucherzentrale Hessen comes to a similar picture. Accordingly, it is important for 93 percent of consumers that their money cannot be completely lost. Almost three-quarters of respondents (72 percent) desire no high risk with their investments. Half of the survey participants (50 percent) want to save ethically-ecologically. Around 40 percent of respondents wish for a tangible counterpart such as real estate or a container. But this often leads consumers to products of the gray capital market, which are anything but safe.

The Gray Capital Market Trap

"The survey results paint an ambivalent picture: Respondents place great value on security. But investments in tangible assets and ethical-ecological projects often belong to the gray capital market. Here, there are almost always considerable risks—up to total loss," comments Wolf Brandes, team leader Marktwächter Finanzen with a focus on the gray capital market at the Verbraucherzentrale Hessen.

Although the vast majority of Germans (93 percent) are careful when investing that the money used cannot be completely lost, investment funds repeatedly end up in the gray capital market. Thus, around 14 percent of savers who have once received a larger sum such as a gift would have decided for products of the gray capital market. In first place were investments in closed-end funds, followed by gold or gemstones and participations, direct investments, or crowdfunding.

Trust in Advisors vs. Self-Confidence

A central role in many cases is played by the close relationship with the intermediary, according to the survey. For 93 percent of respondents, great confidence in the professional competence of the intermediary or advisor is important. 92 percent of respondents state that trust in the person is an important aspect for them. Generally, however, the majority of all respondents (61 percent) feel capable of making correct financial decisions. Over half (52 percent) even stated that they would make investment decisions fundamentally alone. 40 percent, however, desire more support from the state or consumer protection for financial decisions.

The Need for Financial Education

Here, for example, the topic of school education could play a role. Because for almost 84 percent of Germans, the topic of financial education belongs in schools. This emerges from a survey by INSA Consulere on behalf of the German Institute for Retirement Provision (DIA). Only eight percent of respondents rejected such an idea. Significantly more surprising, however, is the great self-confidence regarding correct financial decisions. A study by Kantar Emnid on behalf of Union Investment, for example, comes to a completely contrary statement. Accordingly, 89 percent of citizens complained about major knowledge gaps in financial matters. Further deficits concern, among other things, the topics of interest and debt (79 percent), interest and saving (76 percent), and insurance (72 percent).

Insurers and brokers are struggling in claims management with high backlogs, increasing claim frequencies, skilled labor shortages, and growing customer expectations. Manual processes are expensive and slow.