Allocating resources for elderly care and support.
In the world of retirement planning, a common misconception is that savings accounts are the safest and most reliable option. However, recent data suggests that German investment funds, particularly equity funds, may be less risky than savings accounts for a long-term horizon.
Over a 35-year period, various German investment funds have delivered strong returns, outperforming many other developed market peers. For instance, the oldest equity fund in Germany, Fondak, launched by ADIG in October 1950, has generated a return of over 100,000 percent since its launch. Another example is the DWS Akkumula LC, launched in 1961, which could have earned investors 208,598 euros in 35 years with a monthly contribution of 100 euros.
German equity funds, such as those focusing on DAX and MDAX companies, tend to offer higher long-term returns, often significantly above inflation. Although they carry higher volatility and market risk, mid-cap German stocks are valued attractively with expected above-average earnings growth.
In contrast, government bond funds offer more stable but lower annual returns. For example, the SPDR Bloomberg 3-5 Year Euro Government Bond UCITS ETF provides lower, steadier returns and is statistically less volatile than equities. However, they are subject to interest rate and inflation risks, as demonstrated by the 2.3 percent inflation rate in Germany in June 2021, while the average interest on savings accounts was just above zero.
Savings accounts in Germany typically offer very low but stable returns with almost no risk of principal loss. However, these returns barely keep pace with inflation, making them the least growth-generating option. Long-term retirement simulations show that portfolios with strong stock allocations and reasonable withdrawal rates have a high probability of success over 30-40 years, meaning equities, despite volatility, can provide a better balance of risk and reward than savings accounts or bonds alone.
A diversified portfolio emphasizing stocks with some bonds tends to better balance growth and risk compared to solely relying on savings accounts. The Fondak, currently managed by Allianz Global Investors, is a prime example of this balance, offering substantial wealth accumulation over a 35-year investment horizon.
While a 90-year investment horizon may be considered exaggerated, staying calm with long-term investments has always led to recovery over time, despite historical price drops due to wars, oil crises, economic and financial downturns.
In conclusion, German investment funds, particularly equity funds, have generally performed well over multi-decadal periods and can offer better retirement outcomes than savings accounts, though they involve higher short-term risk. Bonds offer a middle ground, and savings accounts serve as the safest but lowest returning component. For retirement planning, a diversified portfolio emphasizing stocks with some bonds tends to provide the best balance of growth and risk.
- In the realm of personal-finance and long-term retirement planning, German investment funds, such as equity funds, may offer less risk and potentially higher returns compared to savings accounts, despite their higher market risk.
- A diversified portfolio that emphasizes stocks with some bonds can provide a better balance of growth and risk than solely relying on savings accounts for retirement planning, as demonstrated by the performance of German investment funds over multi-decadal periods.
