BASS-T in 2023: Why I would start with shares in the first place
Hello all,
at the request of the community from last weeks poll on 3/18/2013, I will address my approach if I had to start from 0 again today. Before we start but as always my disclaimer:
DisclaimerThis is not an investment advice. It is also not an invitation to buy / sell financial products. I only describe my opinion here. You have your own responsibility towards your investments. So I also assume no liability.
Thematically we are in the first part of the series of "BASS-T in 2023" with the complex of topics demographic development, pensions and will look at how Norway deals with the issue of pensions for its citizens. In addition, we will learn why Germany is only very ponderously moving towards factually necessary and timely solutions and what alternative opinions prevail in the trade union spectrum. I would thus create an opinion for myself today and consider whether the pension will be enough for me some day. Ultimately, this is a question of character, because I don't think anything - absolutely nothing - of the blanket "pension is safe. The statement implies a false sense of security, which in itself is also relative. If I get a pension of 1 euro, then the pension is also secure. But it is by no means enough to lead a dignified life. Unfortunately, Germany is not in the forefront when it comes to innovative concepts for the citizens of this country, so that despite high taxation and a culture hostile to shares of very special colors, we remain on our tricycle, while other countries have been overtaking us for a long time.
In short, I ask the following questions here:
- What is the current state of demographic development in Germany?
- What is the state of the equity culture in Germany today?
- Are there alternative approaches that can look back on a success cycle of at least 10 years?
- What arguments do trade unions provide against the equity pension?
These are all questions on which one could easily write entire articles. I am explicitly addressing the connections between the questions here. If you want to hear more about any of these questions, write it to me in the comments.
Part 1: Why I would start with stocks in the first place
One of the first decisions I made for my retirement planning was done before I even bought a stock. We are talking about the mere decision not to rely on an ailing pension system. Whereas in 1962 there were approximately 6 depositors for every retiree, by 2020 that figure was less than 2 depositors - specifically, 1.8 depositors. With the impending retirement of the boomer generation, it is foreseeable that the ratio will fall further. In 2030, the ratio will be only 1.5 people paying into the pension system. All this can be viewed online and is no big secret (see (1)).
Nevertheless, the proportion of shareholders in Germany continues to hover around 7% - 7.6%. This includes people who also own active funds at banks, for example. It is certainly nice that according to (3) the number of shareholders is slightly increasing. However, this means that an overwhelming majority still clings to the dinosaur of the pay-as-you-go pension system or at least does not take advantage of the opportunities on the stock market (see (2)).
As a consequence, I would make the decision in favor of the capital investment. The "criticism" from parties of a certain spectrum would rather amuse me that it is a matter of "gambling with the pension" and that the state already takes care of the provision of its fellow citizens. A simple thought on this: The Norwegian sovereign wealth fund has a TER cost of 0.05% and has so far achieved an annual average return of 6.3%. This is not witchcraft in my perception either - the fund has clear rules that should be easy to understand for politicians of any color (cf. (4), (5)):
- Equities may account for a maximum of 70% of the fund
- Bonds should not exceed the 30% mark
Real estate must hold the 7% mark
So, for our deposits we get a product that is even monitored by an asset manager called Norges Bank Investment Management and can still keep the above mentioned low flat fee. The top positions include typical blue chip stocks and are also publicly viewable. From Apple, Microsoft, Alphabet to Novo Nordisk or even Berkshire Hathaway, well-known and big names are represented (see (5)).
And how has it gone for the Norwegian sovereign wealth fund so far?
The associated performance of this sovereign wealth fund speaks volumes:
If we use (8) and set the S&P500 as benchmark and the 12-month view, we get an outperformance of the Norwegian SWF against one of the most important US stock market barometers. Also the shorter-term outperformance in the form of the 6-month view is 1.01% compared to 0.43% of the S&P 500. So, tending to be a relatively crisis-proof product that statistically assigns a value of 200,000€ to each Norwegian (cf. (6), (7), (8)). So we see that the Norwegian product is more stable than one of the strongest stock indices in the world and consistently generates money for citizens (cf. ibid.).
Nevertheless, we certainly hear criticism from politicians and trade union associations.
I am not a fan of trigger warnings, but what is coming now definitely deserves a trigger warning for absolute ignorance and hubris.
So if you want to have a nice day, you better watch my video already now and break here.
Ready?
All right. I present one of Ver.Di's leading arguments against the stock pension in its original form - uncommented and not edited by me (see (9)):
- "These [risks of loss] are particularly great if the capital is invested abroad" (1).
UFFFF. That's a tight thesis. But what does Ver.Di recommend instead? Is there an agreeable solution?
Let's read on and find out:
- "The pay-as-you-go pension, on the other hand, is crisis-proof (...)" (2).
and
- "The statutory pension can also cope with demographic change (...) with rising productivity, growing wages and somewhat higher contributions" (3).
Double UFFF. Already now in 2023, the statutory pension needs a subsidy of 112 billion euros from the federal government. Otherwise, it would no longer be solvent and the consequences would be severe (see (10), (11)).
In addition, there is this harsh ignoring of facts, insinuations that are far removed from reality and the tuning in to even higher contributions (which I would prefer to see in the share pension). This spoils the mood for anyone with some knowledge of stocks. But let's take a relatively neutral look at these statements as shareholders:
Let's start with sentence (2) and (3) first:
In Germany, old-age provision is based on the above-mentioned pay-as-you-go pension system - in simple terms, each generation pays the pension of the next generation. This is a simple system that has already shown signs of failure in the past.
One of the biggest disadvantages of the system is that the return is only earned after a certain time as a pensioner. In concrete terms, an average earner (1 pension point per year since 1977) who retired in 2020 would have to live for almost 12 years after retirement for a positive pay-in-pay-out ratio. Only then does this person effectively make a profit on the retained €215,725. Thus, he would receive €1,540 per month and would have "invested" his contributions similar to a 0% payout time deposit with monthly payment over several years (cf. (17)). I see this critically from several points of view:
- It is not said that the person reaches this age
- The received monthly return does not correspond to the level of the deposits
- Consequently, the annuity itself underperforms bond products.
- With 215.725€ Invest many other options are possible
If we took the invested money and directly invested it in boring products like German government bonds, we would have simplified per year:
215,725€ pension contributions over 45 years / 45 years = 4793.89€ per year in deposit.
If we were to invest this in German government bonds for stability reasons, we would generate a return at the end of the term of (cf. (12), (13), (14)) with an average interest rate of 6% per year (according to the 1990s value table):
786.444,50€ (!)
We can also set this lower and limit it to 3%:
At 3%, we have 372,317.91€ at our free disposal when we retire.
I am now explicitly doing what I would never do for myself: buying an e-car.....
No much worse: The purchase of a dividend ETF to show even the last still so worried people the problem of the pension:
Take the popular Vanguard FTSE All-World High Dividend Yield. I used to own that one a thousand years ago. At the time of this writing, it costs €52.80 (see (16)). So if we invest the money in it, we get optional:
786,444.50€ / 52.80€ = 14,894 shares
372,317.91€ / 52.80€ = 7,051 shares
Its distribution yield is currently 3.89%, which means approximately 2.07€ per unit. Resulting:
(A) 14,894 units * 2.07€ = 30,830.58€ annual distribution.
(B) 7,051€ * 2.07€ = 14,595.57€ annual distribution
With this very safety-conscious combination of bonds + dividend ETF, we already get a decent extra income on top of the assets in the ETF anyway. After 12 years, assuming no increase in the value of the ETF and a constant dividend amount:
(A) 12*30,830.58€ annual distribution = 369,966.96€.
(B) 12* 14,595.57€ annual distribution = 175,146.84€.
At this point, after deducting the capital gains tax plus soli of 25%*5.5%=26.375%, a residual amount of (see (15)) remained:
(A) 369.966,96€ * (1-0,26375) = 272 388,174 €
(B) 175.146,84€ * (1-0,26375) = 128 951,861 €
For simplicity, we have assumed here a final taxation at the time of the positive return from the annuity.
But what would such an investment product look like in the style of the annuity? Our conditions are as follows:
- No distribution until retirement (45 years as above).
- Positive return only after 12 years
- Monthly payout based on 48% of salary
So we are at the point after 12 years at:
..
..
0€ Return.
Yes - we have all the time received a pension far below the percentage of deposits.
Yes - the horizon of the pension is theoretically infinite.
BUTEven the above-mentioned billostrategy of bonds and dividend ETF has already generated a 6-digit result AFTER taxes in both cases at the time in question. From now on one would be free to think about other products and possibilities. In the pension this is factually not provided - one pays in and receives something afterwards.
I find particularly successful the representation in form of a caricature Ver.Dis, that the pension is a safe block on which the pensioners can stand stable. More realistic would have been a rectangle falling downwards, so that the real zero or loss line (in my imagination represented as roaring water) is no longer far away. The pension level has already been falling for years and the subsidies are burdening the state budget to the tune of billions of euros. It is completely beyond me why people don't want to understand the share principle on the part of the unions. Even as a minor addition to our ailing pension, they don't want to have the share pension - significant here is the demand at the end of the text for even more subsidies for this ailing tax hulk (see 9)).
Especially this last point about the unprofitability of the German pension system is relevant against the background of (1). Alone the idea that the money should stay in one's own country, because otherwise it is apparently not safe, does not exactly indicate expertise in my opinion (cf. (9)).
If we compare the evil foreign countries with the social hammock Germany on the basis of DAX and S&P 500, we see a massive outperformance of the S&P 500 WHILE it does not include dividends as a price index, while the German stock barometer par excellence does as a performance index. In the end, we end up with (cf. (16)):
- S&P 500: 3,994.3 points with return +2,516.30%.
- DAX: 15.234,86 points with return +1.209,38%
I leave the enormous difference plus the interpretation of DAX values to you.
If you feel like an entertaining stock analysis of a dividend aristocrat after this riotous topic, please have a look at my latest video on Johnson & Johnson $JNJ by:
And now it's your turn:
Do you rely on pensions? What do you think of the Norwegian sovereign wealth fund?
Feel free to let me know in the comments!
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Your Bass-T
#aktien
#aktienrente
#rente
#etfs
#etf
#dividende
#dividendenaktien
Sources
(2) https://de.statista.com/statistik/daten/studie/1101655/umfrage/aktionaersquote-in-deutschland/
(3) https://www.dealdoktor.de/magazin/tag-der-aktie/
(5) https://de.extraetf.com/wissen/investieren-wie-der-norwegische-staatsfonds
(7) https://www.vdk.de/ov-schopfheim/ID126800
(10) https://rentenbescheid24.de/unfassbar-112-mrd-euro-bundeszuschuss-fuer-die-rente-2023/
(12) https://rendite.rechner.handelsblatt.com/rechner/handelsblatt2/gleicherzins/default.aspx
(13) https://de.extraetf.com/etf-profile/IE00B8GKDB10
(14) https://www.bundesregierung.de/breg-de/aktuelles/rentenerhoehung-ost-west-angleichung-2172482
(15) https://www.weltsparen.de/steuer/kapitalertragsteuer/
(16) https://www.google.com/finance/quote/.INX:INDEXSP?hl=de&comparison=INDEXDB%3ADAX&window=MAX
