Although the balance has increased nominally, the account holders remain unnoticed sitting on a capital loss of 0.8 percent. After 30 years these add up to a loss of over 20 percent. Anyone who saves in the long term must therefore look for ways to avoid the safe destruction of capital.
In the last few decades, Germans had little to worry about preserving their wealth. Thanks to the strong German export economy and a clever monetary policy on the part of the Bundesbank, they were spoiled with a strong currency and a stable monetary value. This is the only way to explain that today money is given a property-like significance.
One is only too happy to hold onto these pleasant experiences, but framework conditions are changing and it is time to remember the laws of our monetary system.
Banknotes are promissory notes, originally created to facilitate trade in goods and services. Issued by banks, they are technically no more or less than a bank’s future promise to pay. The compulsory levy in Cyprus has shown that the redemption conditions are vague and savers rudely pulled out of their dreams. The move away from the gold standard and the Bretton Woods system in the 20th century were undoubtedly economically necessary, and yet they mean that the creation of central bank money is no longer tied to the deposit of value.
The modern monetary system even goes one step further. If a bank wants to borrow money from the central bank today, debts instead of assets, for example government bonds, can be deposited as security. The intrinsic value of money, regardless of whether it is cash, account balances or savings, has thus been deprived of any basis; it can be undermined at any time – even without radical debt cuts. In addition, there are hardly any technical limits to the increase in money since the introduction of book money. The money carousel is turning faster and faster.
Against this background, long-term savers should focus on building up valuable assets – real estate, precious metals, but also art, vintage cars and other rarities immediately come to mind. Anglo-Saxons and Americans, incidentally pioneers of modern monetary policy, have long recognized this. They particularly prefer stocks as property-based assets over pure monetary values and have always had a strong equity culture.
The proportion of shareholders in the USA and Great Britain is probably over 20 percent for a reason, whereas fewer and fewer Germans, currently 7.1 percent, are investing in equity investments. The low proportion of shareholders in the young population in this country is particularly sad. Because they should rethink their approach so as not to have to foot the bill for the mountains of debt accumulated by previous generations.
It is probably the fluctuations on the stock market that put off security-loving German investors who need planning. At the same time, shares are rationally considered as company shares and participation in the productivity of an economy, likewise valuable assets. They are also fungible, can be divided into small amounts, distribute income in the form of dividends and offer asset protection with limited multipliability and limited access by strangers.
The lion’s share of value creation is made by companies’ sustainable dividend policies, which is why they should be a central quality feature. Companies like ThyssenKrupp or Siemens have been able to withstand economic crises, political upheavals, wars and currency reforms in the past.
In order to counter the imbalance of individual companies, risk diversification was and is inevitable. And without question, shareholders had to cope with severe losses in the meantime, but were able to protect their assets from decay better than with monetary values.narrative report about community service
Shares also have something to oppose the modern form of expropriation: Company shares are only available and can be increased to a limited extent, so shareholders are protected against the dilution of their shares. They can have a say in the issue of new shares and receive their share of the company’s success by exercising subscription rights. In contrast, the owners of euro or dollar notes have not yet been offered any compensation by the central banks for the excessive expansion of the money supply.
Germany needs a new culture of savings that is based on assets instead of monetary values and recognizes the importance of money for a functioning economic system – but at the same time does not overestimate the intrinsic value of real property.
Stock exchanges and markets: How the DAX, Dow, euro, oil and gold are developing Guest column: Lessons from the soccer World Cup for an optimized portfolio structure Investment at a loss: The richest in the world are hoarding cash Woda (source: private)
Susanne Woda is a portfolio manager at GVS Financial Solutions GmbH (formerly Merito Asset Management) in Dreieich and is responsible for stocks and bonds there. Before that she worked in Wealth Management at Commerzbank.
The opinion of the guest authors may differ from the opinion of the editorial team.
According to a study, the interest rate policy of the European Central Bank (ECB) results in losses in the billions for German savers. Allianz compared the interest rates in 2013 with the average interest rates for the years 2003 to 2008 and then compared the interest rates “lost” on the deposit side due to the loosened monetary policy to the interest gains on loans. The result: The bottom line was that people in Germany lost 67.60 euros per capita in 2013. In addition, there is the inflation effect, which means that interest rates are lower than the rate of inflation – savers are expropriated in the cold.
“The loss of interest has almost doubled from 34.20 euros in the previous year because deposit rates have fallen sharply, but building loans in particular have hardly given way,” said Allianz economist Arne Holzhausen. According to the figures for the first quarter, the per capita loss in 2014 should even rise to 71.60 euros. The effect is reinforced by the fact that more and more money is being put into short-term deposits such as savings books or overnight money accounts.
In other euro countries, on the other hand, according to earlier information from Allianz, people benefit from mini interest rates. Because debtors play low interest rates, while creditors are the losers. Holzhausen emphasized: “This shows that the German households have to pay their contribution to the extremely loose monetary policy of the ECB to support the weaker countries.”
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It is paradoxical: although interest rates have been extremely measly for months, people in Germany prefer to put their money in savings accounts or overnight money accounts. However, they steer clear of stocks. The Deutsche Bundesbank sees a “certain risk aversion”. But the preference for apparently safe investments costs the citizens dearly: Because savings interest is usually below the inflation rate, they lose real money. Experts accuse the European Central Bank (ECB) of expropriating savers in this country with its zero interest rate policy in favor of troubled euro countries.
Europe’s top currency guardian Mario Draghi does not want to wear this shoe. He takes the concerns very seriously, but “the interest rates that we set apply to banks, not to people”. The ECB President stressed: “The claim that we want to expropriate savers is completely wrong.” They want exactly the opposite: support growth. Then the interest rate will pick up again.
In fact, figures from the Bundesbank show that savers have repeatedly had to accept real losses over the past 40 years if they invested their money in short-term savings deposits with a maximum of three months’ notice. And not only when the key interest rate is 0.15 percent, as is currently the case. Much higher interest rates are often below inflation, which then eats up the return.
Meanwhile, more and more money is in call money accounts. According to the Bundesbank, private households had 964 billion euros in daily accounts at the end of May – a year earlier it was 83 billion euros less.
German savers, on the other hand, do not trust stocks. Although the stock exchanges were booming in 2013 – the German benchmark index DAX rose by 25 percent – around 600,000 people parted ways with stocks or funds, according to figures from the Deutsches Aktieninstitut (DAI).
Readers ask – expert answers: How to save properly for your retirement Investment: Many banks do not pay interest on overnight money. Controversial policy model: Federal Court of Justice against reversing old life insurance policies
The Federal Association of German Volksbanks and Raiffeisenbanks (BVR) does not expect a trend reversal in the savings behavior of Germans in 2014 either. The savings rate will therefore remain at the previous year’s level of 10.0 percent – in 2008 people in this country still saved 11.5 percent of their income. The savings rate has not yet plummeted, but its downward trend is a threat to financial pensions. Because the rate should actually increase, says BVR board member Andreas Martin: “Otherwise the risk of old-age poverty in Germany increases.”
Are you looking for a crisis-proof investment? Then you should buy a condominium that you use or rent out yourself. This form of investment opens up interesting opportunities to purchase home ownership for old age in a reliable manner. Find out more about financing your own four walls here.
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If you are thinking about your retirement and your old-age provision, you should also be prepared for discounts on your monthly income. If you don’t want to get into financial difficulties in old age, then invest in your own property during your employment phase. If you don’t want a detached house, then you should buy a condominium. Agree on a term with your financier that coincides with your retirement. Those who pay off a building loan by the time they retire no longer have to pay rent for housing when they get older.
Determine your financing needs early on if you want to buy a condominium. The higher the base of your own funds, the less external funds you have to borrow. Also, determine exactly what amount you can raise monthly for a loan installment without encountering a financial bottleneck.
A secure job can also be a foundation for borrowers to buy a condominium with favorable interest rates if there is no equity available. With full financing, you pay a premium, but you save on financing costs in the long term. However, this form of building finance is also dependent on long-term economic efficiency.
Buying a house: Viewing real estate – How to recognize defects Comparison: Retirement provision – Statutory, business and private Investment: Is a property worthwhile as a capital investment? Concrete gold: Germans rely on real estate when it comes to old-age provision. Last-minute pension provision: How to protect yourself
If you want to buy a condominium, you live under one roof with other people. Monthly reserves are set up for repairs and maintenance. Also note that you are not legally entitled to any refund if you sell your home. You are also limited when it comes to structural changes. Owners’ meetings regulate individual wishes on the basis of majority resolutions. Before buying a condominium, you need to carefully weigh the pros and cons.
Good whiskey from Ireland, Scotland or the USA is rare. Does the high-proof drink automatically make a financial investment?
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Word has got around in the past ten years that good wine – especially red wines from France – can bring in amazing returns. This makes it difficult for career changers to get real bargains. Accordingly, the focus is on other real asset investments. Whiskey is increasingly profiling itself as a trend with future prospects: The taste and quality dimensions of high-proof are considered by connoisseurs to be at least as multifaceted as with good wine. However, the market is much smaller, which can be both an opportunity and a risk.
An important institution for measuring value is the World Whiskey Index, which monitors the prices of over 46,000 bottles. One of the most expensive representatives is a Springbank single malt from 1919, which is being launched for around 55,000 euros. The operators of the website estimate the potential annual return at around twelve percent. With stocks of high quality products dwindling rapidly, you shouldn’t be wrong.
Similar to wine, such an investment requires a high degree of expertise and a sure instinct. Terms such as “blended malt”, “vatted malt” or “single malt” shouldn’t be foreign words to you. You must also be able to distinguish a well-known distillery from mass producers and understand something about proper storage and whiskey production. The fact that the collectors’ market is still relatively concentrated at the moment enables lateral entrants to gain access very quickly.
Investment with a fun factor: Garage gold – Are oldtimers a good investment? Tangible assets: Watches are suitable as objects of appreciation. Travel: Scotland – The most important sights Whiskey: Full rush of returns with fine whiskey Scottish cuisine: Haggis – Fascinating national dish from Scotland
The procurement of the goods should not be underestimated, however: anyone who seriously wants to pursue such an investment has to dance on the international floor of the relevant auctions.
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