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Photo: Matthias Stolt / CHROMORANGE / IMAGO
Do you have any plans for 2023?
One of the projects that you should definitely tackle is to put your investments to the test.
Because there are now interest rates again – and real inflation.
That's why you finally need a depot now.
In the past two months, I've given countless interviews about investing in times of inflation.
Interest is finally back, what should citizens do with their savings?
Actually there is a mistake in the question.
Namely the assumption that everything will be different and better for savers now that interest rates are back.
Interest is back
With all due respect, that is not the case.
Although inflation and the current interest rate situation benefit banks' balance sheets, they are far from benefiting you as a saver.
For years there was practically no interest, many savers even had to fight so that they did not have to pay the banks custody fees for the money in their accounts.
At the same time, inflation was two percent or less.
This means that money that was parked in the bank without interest lost two percent in value every year.
That was unpleasant.
That's why our recommendation for "Finanztip" was: Invest part of the money that you don't need in the long term in a market-wide, global equity index fund.
Such fund shares are not hoarded at home in a safe, but in a special account for securities - the custody account.
Five percent depreciation instead of two percent
At that time, the times for account savers were still comparatively good, because their savings only lost two percent of their purchasing power a year.
In 2022, inflation was just under eight percent – and most accounts still had no interest or only minimal interest.
If you were on the right track, you will have found a fixed-term deposit account in autumn 2022 that will pay you three percent interest annually for the next three years.
Eight percent inflation, a maximum of three percent interest.
That's a really bad combination for savers, because their savings lose around five percent in value - even if they've been looking for good interest rates.
With call money accounts, you would have outperformed inflation in just one year since 2004.
And that was in the crisis year of 2009.
In the long term, the better alternative: depot
That's why I'm telling you in 2023, perhaps even more urgently than in previous years: If you want to save in the long term and don't have a house to pay off, put your savings in a securities account, enjoy the long-term performance of shares and sit the short-term fluctuations on the Just trade out.
In order for such a custody account to be really worthwhile for investors, it should of course not cost much.
Every euro of costs reduces the return.
This effect is particularly evident in long-term investments.
Imagine you bought securities for 5000 euros and placed them in your custody account.
Your equity index fund would then have gained an average of six percent in value over the past ten years.
5000 euros would have become almost 9000 euros.
On the call money account, the 5,000 euros would have turned into just 5,500 to 5,800 euros.
If the purchase of the securities, i.e. the shares in the stock index fund, had cost 25 euros and you had had to pay 45 euros in custody fees each year for storing them in the account - a normal value for Volksbanks, savings banks or large private banks - then from the 5000 Even with your successful equity index fund, it has only become EUR 8,316 - almost EUR 650 less.
How much does a depot cost?
It is therefore important to have a cheap depot that does not incur such costs if possible.
You can find free depots at some direct banks such as ING, Consors, Comdirect or 1822direkt.
And on the other hand with a number of new securities brokers, in technical jargon neobrokers.
These include companies such as Finanzen.net Zero, Justtrade, Scalable Capital, Trade Republic and Flatex.
Just as important, if not more so, is the question of cost when you start saving regularly with index funds.
Imagine you buy new shares in the stock index fund every month for 200 euros in addition to your one-time investment of 5000 euros.
You then put a further 24,000 euros into the fund over a period of ten years – as long as the purchase is possible without additional costs.
This is the case, for example, with the direct bank ING and also with neo-brokers such as Scalable or Trade Republic.
With classic banks, on the other hand, you pay a purchase fee of five euros every month for such savings plans.
That's a total of 600 euros in fees.
However, because of the compound interest effect over the period, you lose more than 800 euros.
You would have lost more than 1,400 euros in ten years with your investment of 5,000 euros and the savings plan just because your custody account was not particularly cheap.
There is a total of 40,197 euros in your account instead of 41,607 euros.
And I have by no means made assumptions for a particularly expensive model.
In addition to the purchase costs, some banks charge administrative fees as a percentage of the value of the custody account.
What sounds harmless really hits the spot.
In our example, half a percent of the administration fee costs the saver 200 euros a year after ten years.
Opening a depot is easy
Two questions remain.
First: Is it complicated to set up a depot?
No, it's not.
If you open the custody account at a direct bank where you already have an account, then setting it up is quick and easy.
Your depot works in a similar way to another online account.
If you go to a bank that you don't know yet, you have to go through the same steps as opening an account.
In addition to the paperwork, you must prove your identity using the video identification procedure - on your computer or mobile phone or using the post identification procedure in a post office.
This can take a few days.
In any case, a clearing account is part of the depot.
Either with the direct bank where you open the securities account, or - if you have decided on a neo-broker - with a bank selected by the neo-broker.
From the settlement account you buy securities, pay for them and possible dividends also go there.
Of course, my colleagues at "Finanztip" only recommend depots where the associated account costs nothing.
You usually transfer the money for securities transactions from your current account to the clearing account.
In technical jargon, this original account is then called a reference account.
How safe is the money in the depot?
Now to the second open question: Are the assets in the custody account safe?
Yes, the depot is protected.
Even if the broker or bank went bust, the funds remained safe in the clearing account and custody account.
The money in the account is part of the statutory deposit insurance - and your securities are kept separate from the assets of the custodian bank.
Which of course does not mean that the shares in your portfolio are not subject to normal stock market fluctuations.
The value of your portfolio fluctuates with developments on the stock exchange.
The longer you stick with it, the less important these fluctuations become.
In the long term, things have been going uphill for decades.
And the broader you invest, i.e. the more different stocks from different countries you have in your portfolio, the smaller the risk of individual bad apples.
There are 1,500 stock corporations from over 20 countries in a broadly diversified equity fund.
In the past decades, investors with international equity funds with a broad market have never lost money after 15 years and have achieved an average return of seven to nine percent per year.
Over the long term, it is regularly significantly more than the inflation rate.
There is no guarantee that this will always be the case, but the logic of the broad distribution across thousands of different companies from several dozen countries significantly reduces the ups and downs on the stock exchange.
This has always worked for the past 40 years.
This means that investors have increased their assets in real terms.
You can too.
At the Berliner Ensemble, the great old theater that Bertolt Brecht once founded, there is currently the right saying at the beginning of the year: Change the world, it needs it.
Start with your personal world.
Don't let your money go moldy.
Next, you can then use it to achieve your goals.