Gives peace of mind to money

Corona consequences: Don't get hectic with stocks and other investments

Despite strong price fluctuations on the stock markets for fear of the coronavirus, you should now act prudently when it comes to money issues and, if in doubt, seek independent advice before you make any momentous decisions.

It is always a good idea to put your own long-term investment / retirement provision on a better foundation. We have put together some information about the current situation for you.

You can find information on the federal government's Corona aid package in our corresponding article.

You can find all of our consumer information on Corona on our overview page on the subject.

Stock prices are on the move

The stock markets collapsed worldwide in March as a result of the pandemic. In a short time, the value of the companies included in the German DAX share index has fallen by around 40 percent. Even with global diversification, the losses meanwhile amounted to around 35 percent.

What is important for investors, however, is that this is irrelevant for a long-term investment strategy, provided the money is broadly spread across a large number of stocks from different industries and countries. Because here applies: Buy and leave has produced the best long-term investment results to date. In any case, you should pay attention to a long investment horizon of ten years upwards and broad diversification in your retirement provision. And despite all the crashes and crises: the German DAX share index has increased roughly tenfold over the past 30 years.

So whoever has shares should have them don't sell hectically. For example, if you are in Fund savings plans as retirement provision invest, then a price drop in between is not a problem. Because at low rates you currently get more shares for the same money that you regularly pay into the savings plan - in other words, you even benefit from the rates that have fallen in the meantime. The decisive factor, especially with savings plans, is how the prices develop towards the end of the savings phase, when you then need the money, e.g. for your retirement.

But it is also decisive in which products you have invested. There are very cheap and good products, but also hair-raising expensive ones with questionable investment strategies. If stocks are generally an option for you, we only recommend stock ETFs. ETF stands for Exchange Traded Fund. One often speaks of index funds. You can achieve a broad geographical distribution with the MSCI All Country World, for example. Also one Spread across several asset classes makes sense for your retirement provision. property or safe system components such as Fixed deposit are a useful addition.

Do you own Single shares to companies, you could be yours because of the developments caused by the coronavirus Check depot: Which companies could be particularly affected by the effects of the Corona crisis in the future? For example, if you have stakes in the aviation or travel industries, consider one Redeployment to. But that also means that if the stock's value is lower than it was when you bought the stock, you may be losing money now.

Only if you are now in urgent need of the money can you avoid any major losses by selling. On the other hand, can you wait a while until the risk of infection has been averted by effective medication and vaccinations? keep your stocks - at least if you are still convinced of this company.

The gold price is already at a very high level

An investment in real assets such as gold is not a safe investment in the sense that the money is paid back one hundred percent. In addition, the gold price is already very high. At most, you should add five to ten percent to your depot as a buffer.

You can read more about gold as an investment in our separate article.

Be careful also with unsolicited offers!

Be critical and suspicious of unexpected contact via email, telephone or post. Also, be skeptical if friends and acquaintances send you links to YouTube videos spreading conspiracy theories and talking about the impending collapse of the financial system. Mostly wild theses are spread here by apparent experts without any evidence, either to receive advertising income or to link to dubious investment opportunities that bring the senders commissions. Tips on buying gold or bitcoins in response to the crisis are simply dubious. Even assuming that there will be government bankruptcies, that would be the wrong solution. Recently, criminals have also increasingly sent phishing e-mails suggesting that you need to take action where nobody is. You can also read up on how you can identify fraudulent providers from us.

But also brokers, finance and insurance brokers, employees of banks and savings banks take advantage of the uncertainty of some investors to reallocate products for commission or to sell new ones.

For example, you should be skeptical about such offers that are made to you without being asked

  • If a broker wants to apply for state aid for you in the corona crisis.
  • If a financial advisor sees a need for private supplementary health insurance with the right to treatment by the head physician in a double room or daily allowance insurance.
  • If a bank advisor wants to use new legal regulations and optimize real estate financing.

Take the time to see if there really is a need. Find out about alternative offers. Obtaining further opinions from good friends can help, as can independent advice from consumer advice centers.

The most important thing to listen to

The corona crisis has led to major price losses on the stock exchanges. In this podcast series, Niels Nauhauser from the Baden-W├╝rttemberg consumer center answers consumer questions about the effects on personal investments.

Frequently asked questions about Corona and old-age provision / investments

Here we collect what consumers want to know from us about their retirement provision in times of Corona - and provide answers.

What about my private pension insurance?

In general: Guarantee services from a private pension insurance are currently not in danger. However, if a new banking crisis or even a sovereign debt crisis should occur as a result of a severe recession, it cannot be ruled out that guarantees will also have to be reduced. However, societies must not just do this, but certain requirements must be met. For example, trustees or supervisory authorities must be involved and agree. It doesn't look like it at the moment, and any look into the future is pure speculation.

In the case of a pension or life insurance policy that, on the other hand, invests the contributions in funds without special guarantees, price losses are possible. Information on investing the savings can be found in the annual status reports and in the insurance policy. The problem with these products is that the insurance companies are usually associated with high acquisition, sales and administration costs. There are also costs for managing the funds. The bottom line is that this often costs consumers around 2 percent of their assets per year.

In addition, it is not always guaranteed that the funds also pursue a solid, broadly diversified investment strategy. Then there is a need for action.

What about Riester fund savings plans, how do they get through the crisis?

According to the law, Riester contracts must guarantee the capital employed, including funding, at the end of the savings phase. Losses must be ruled out. Therefore, the providers try to minimize risks. If share prices plummet, they shift into safe investments, mostly into pension funds. The equity fund quota can only be increased again after the markets have recovered.

But all the back and forth about risk management comes at the expense of returns. Riester fund savings plans therefore suffer particularly from stock market crashes. Under certain circumstances, it can make sense to make Riester contracts free of charge or to terminate them and change providers, even if there are currently losses on the books. Attention: Termination means repayment of the state subsidy - allowances and possible tax savings - unless the money flows into another Riester or residential Riester contract within a specified period.

Especially when there are still many years to go before you retire, you should make sure that the contributions are still invested with good prospects for positive returns. But this is not always the case with Riester contracts.

Is the money in the savings account or the fixed-term deposit safe - even with foreign banks?

Yes, but only under certain conditions. We recommend limiting the deposits to 100,000 euros per account holder and only choosing institutions with German deposit insurance. Should there be another banking crisis and possibly also a sovereign debt crisis, the deposit insurance may reach its limits in some countries.

There is no EU deposit insurance, only national solutions. If a bank gets into difficulties and the funds of the deposit protection are insufficient, it must be shown whether there is political will to step in with tax money in an emergency.

In this country, in an emergency - not least thanks to the good creditworthiness of the Federal Republic of Germany - capital losses with deposit-guaranteed products of up to 100,000 euros could be absorbed. After all, savers in this country are also voters who have a say in politics.

According to some forecasts, the worst recession in the world since World War II is looming. What does this mean for my retirement provision?

The prognoses still differ widely, which is related to the great uncertainty of how things will continue. Of course, when you read something like that, it sounds terrible. The numbers on which such a statement is based, however, are not quite as terrifying. In April 2020, the International Monetary Fund expects global economic output to decline by 3 percent for the 2020 calendar year. According to this forecast, it should grow again by 5.8 percent in 2021.

The effects of such an economic downturn would be very different. In many cases there is a risk of long-term unemployment. The old-age provision for employees naturally depends on their employment. Because the amount of the statutory pension and the possibilities to build up wealth depend on the income.

It can therefore be worth considering investing time, and perhaps also existing pension assets, in your own training and further education in order to secure or improve prospects for the future.

Where and how should I possibly reallocate my retirement provision? What attractive opportunities are there currently, also for subsidized systems?

There can be no general answer to this question.

Anyone who has debts is usually well advised to pay them off first.

If you want to build up your assets over the long term, you should ensure that risks are well diversified across various asset classes and that you have good, inexpensive products that suit your individual needs.

The most important asset classes include:

  • Properties that can be invested in with various open property funds.
  • Stocks that can be invested in inexpensively with the help of equity funds.
  • Raw materials, especially gold (if you only mix it in).
  • Interest-bearing paper, which can also include overnight and fixed-term deposits.

For more than a hundred years, the stock markets have already experienced a number of crises that were humanly and economically even worse than what we are currently experiencing due to the virus. Just think of world wars, upheavals in political systems, hyperinflation and currency reforms.

In the long term, only a broad diversification of risk across different asset classes offers the highest level of security.

Should I invest in stocks, index funds or industries now, or should I wait?

The only honest answer to this is that you will never catch the perfect timing. Nor should one try. Because the stock markets react every second to changes in the expectations of market participants. Nobody can know today what impact the coronavirus will have on companies' profits this year or next - but expectations are constantly emerging on the market, fed by thousands upon thousands of experts worldwide.

With every new piece of information, the expectation is corrected. The experts call this "pricing in". Expectations, moods, business figures and their risks, yes, currently also the number of infections and of course the discussions about contact restrictions and their perspective relaxation: All of this is always priced into the current exchange rates.

Ultimately, however, nobody knows how it will come: in such a phase of high uncertainty, prices can rise again just as quickly as they fall.

Aren't stocks, for example in pharmaceutical companies, particularly attractive now?

Pharmaceutical companies may be profiting from the pandemic. That is why their prices have fallen less sharply, and some have even risen. Share prices are a bit like real estate prices and their location: Of course, you can buy real estate in good locations today, then you pay a high price. Or if you buy real estate in a bad location, then it is cheaper. However, price increases can only be achieved if the situation has improved since the purchase.

In the case of stocks, it would be roughly the case that future expectations of earnings prospects would have to improve compared to today's expectations, then prices would rise. Such predictions are simply not possible reliably, not even for individual industries such as pharmaceutical companies, which could be profiteers at the moment. It is therefore generally important that the risk is broadly diversified across all companies, countries and sectors and that costs are low.

Those who have barely invested their money in stocks so far can also take the opportunity to adjust their equity quota depending on their risk tolerance, for example with ETFs on indices such as the MSCI All Countries World or the FTSE All World.

Times of uncertainty are always times for businessmen too: Are there any dubious offers that should be warned about?

Yes. Sometimes there is talk of the threat of hyperinflation, certain financial collapse, a wave of government bankruptcies and the decline of the euro. Some crash gurus use fear to sell their books or to encourage investors to buy their own mutual funds. Still others earn money through advertisements with their YouTube videos, where they spread wild and unsubstantiated theses: You should get the money from the bank while you can and the state would soon expropriate all wealthy, it says there, for example.

In part, these are the same people and the same theses that we heard during the financial crisis. Incidentally, some gold traders also know how to take advantage of the uncertainty that has been stirred up by promoting investments in gold coins and bars. What should you think of it? Nothing.

The best answer to risk is and remains the risk diversification mentioned above.

This content was created by the consumer centers in North Rhine-Westphalia, Schleswig-Holstein and Baden-W├╝rttemberg for the network of consumer centers in Germany.