Looking for ways towards a comfortable retirement

In the past, the trade body for Germany’s €1.8trn mutual funds industry employed people mainly in Frankfurt, with some consulting with politicians in the capital Berlin.

But no longer, explains Thomas Richter, managing director of the Bundesverband Investment und Asset Management (BVI).

He is just as likely to be present in Brussels, in German businesses explaining saving for retirement, and in classrooms speaking with pupils about investing.

The BVI explains and encourages the public to save. It also lobbies domestic and pan-European legislators to facilitate saving through fund
vehicles, and to make legislation workable and fair for its members.

The BVI’s 83 members, representing almost all of the fund wealth in Germany and employing 12,000 directly, and indirectly 300,000 to 400,000 people, bear a lot of responsibility on their shoulders.

The overall savings story in Germany is not significantly different from that in other European nations.

Despite Germans investing about 11% of their income, not all are putting enough into the range of vehicles available, to finance a comfortable  retirement, according to Richter.

The danger is, in trying to secure short-term returns – effectively by ‘playing it safe’ with their investments – they risk losing out in the long run.

“Trying to get short-term guarantees means long-term losses, but people  think it is the other way around. If I look to the long term, I do not have  to get involved with short term guarantees.”

Even those returns traditionally regarded as ‘safer’, such as money market and sovereign debt, have become unsafe, insofar as the yield on them has become in some cases negligible, and is being eroded by inflation.

In emerging markets (EM), where yields can be higher, so too is the threat of inflation.

Statistics from BVI on returns from funds last year should encourage Germans to buy them, and in particular equity products.

European equity funds rose by 10.6%, in value; global share funds by 15.1%; German equity portfolios by 17.1%; and EM funds by 22.1%. Global mixed funds and EM and euro bond funds made between 9.6% and 2.7%, with only open property funds falling in value, by 1.3%.

But Germans put more into mixed funds (sales grew by 13.8%), than into equity products (sales up by 10.2%), then bond funds (9.9%).

Avoiding equities and opting instead for asset classes with poorer returns would cost investors in the end, Richter says.Putting €100 per month, for an entire 40-year working life, into a market returning 4% (mid-risk fixed income, for example) sounds impressive. But the investor who does so then withdraws €800 per month from the pot on retirement, and loses all their capital within 16 years.

For someone investing in markets returning 2% annually, the capital is gone after just eight years.

Saving in markets returning 6% a year (a modest annual gain for an equity investor) sees the retirement capital keep growing for at least 20 years, despite drawing the €800 per month to live on.


David Walker

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