German households’ return on real financial assets low but positive

Households in Germany achieved a real return of just under 1.9% on their financial assets portfolio in the first quarter of 2017. Despite the low-interest-rate environment, the figure was therefore slightly up on the average since 2008 of 1.7%. Nevertheless, according to the August Monthly Report, this is well below the long-term average since 1991 of 2.8% The financial assets portfolio comprises all the major financial assets of savers. Besides cash and bank deposits, these include, in particular, insurance claims, shares, debt securities and mutual fund shares. For the Monthly Report, the Bundesbank’s experts examined the returns of various forms of investment adjusted for the loss of purchasing power and the resulting real return on financial assets from 1991 up to the first quarter of 2017.

Bank deposits make small contribution to the real total return

This study revealed a marked rise, especially in real stock, returns towards the end of this period. At the same time, there was a perceptible decline in real returns on bank deposits and insurance claims, with the former latterly falling significantly below zero. "This was due chiefly to the prevailing rise in the rate of inflation since mid-2016," write the Bundesbank’s economists. Despite the marked decline in the real return since 2016, claims on insurance corporations consistently made a positive and significant contribution to the real total return according to the Monthly Report. Securities, too, made a predominantly positive contribution throughout this period. However, the intermittently high real returns on securities were reflected only to a limited extent in the real total return, as their share of the portfolio had been comparatively small since 2009 at less than one-quarter. By contrast, bank deposits plus cash are popular with German savers. Their share of the portfolio currently stands at just under 40%. Nevertheless, their contribution to the real total return throughout the period considered was much smaller than that of securities.

Price developments suppressed the real return

According to the Monthly Report, other factors were more important from 1991 onwards. "Developments in nominal returns were, in nearly all cases, the key factor for the return on the real portfolio." Prices, as measured by the consumer price index (CPI), made a smaller, but still marked contribution. When viewed in isolation, a rise in the CPI lowers the real total return. "Owing to falling but still positive rates of inflation, the CPI continued to make a positive contribution to the change in the real return in 2014 and 2015," write the Bundesbank’s experts. From mid-2016, rising inflation was making a positive contribution, however.

According to the Monthly Report, changes in the composition of the portfolio, by contrast, played a secondary role in terms of the real total return. As the Bundesbank’s experts see it, this is consistent with the observation that, in their portfolios, households in Germany show hardly any response to interest rate developments. According to the Monthly Report, the portfolio structure is shaped above all by "personal preferences as well as demographic and institutional factors that change only slowly over time".