Poverty in old age is threatening: Why stocks could be the salvation!

Poverty in old age is threatening: Why stocks could be the salvation!

Many people in Europe are facing the growing risk of poverty in old age. Experts warn that the biggest threat lies not in the price fluctuations of the financial markets, but above all in investors' fear of this volatility. In Germany in particular, the population seems to be hesitant to engage more actively with stock investments. Loud NZZ The lack of confidence in stock investing often correlates with a false sense of caution, which prevents investors from benefiting from higher long-term returns.

A person in their 50s often has the majority of their assets invested in pension funds that only offer 2-3% interest on retirement savings. These returns are often not sufficient to secure purchasing power over time. The third pillar also includes funds with similar returns. This stagnant development contrasts with the performance of the S&P 500, which rose 6% in May, which is more than twice as much as the annual interest rate of pension funds.

The role of stocks in the pension system

The current state of retirement provision in Germany makes it clear that many citizens keep their assets mainly in cash or in checking accounts instead of investing in promising investments such as stocks. Only around 17.6% of Germans are shareholders, while in the USA this proportion is 54%, shows daily news. Women are particularly affected by 'share phobia' and have great respect for the stock market, which is clearly reflected in the low number of female shareholders - only 38%.

This “stock phobia” has concrete financial consequences: women receive an average pension of 900 euros, which is 42.6% less than men. In 2022, the average old-age pension for women was 890 euros per month. Experts emphasize that targeted investment in stocks could effectively alleviate poverty in old age. Nevertheless, the federal government's planned stock pension, which plans to invest 12 billion euros annually in various assets, falls far short of expectations of reducing the population's fears.

Potential of equity investments

Although stock markets are often associated with uncertainty, in the long term they show a positive return of an average of 7.5% worldwide. Small caps and technology stocks in particular have the potential for higher returns, even if they come with higher volatility. The statement that price fluctuations represent an opportunity rather than a risk for long-term investors is becoming increasingly accepted. In addition, alternative investments such as Bitcoin and smaller cryptocurrencies are viewed by experts as valuable, albeit risky, additions.

It remains to be seen whether better financial education in schools and more intensive information can promote “active action” in retirement planning. Only by taking a proactive approach to their finances can citizens ensure that they are not dependent on potentially inadequate state pension provision as they age. The results so far show that volatile environments also harbor real opportunities and not just risks that need to be avoided.