Investment in stocks is on the rise.
Germans Shift Towards Stocks as a Safe Investment Against Inflation
A new survey by the German Institute for Asset Building and Old-Age Provision (DIVA) has revealed a growing interest in stocks among Germans as a safe investment against inflation. The findings suggest that reservations about stocks in Germany are decreasing.
According to the survey, stocks rank third as a safe investment against inflation, with 24% of consumers preferring them. Real estate tops the list, with 37% of consumers choosing it, while precious metals follow closely with 26%.
The increase in sentiment towards stocks among Germans, particularly those aged over 30, could be attributed to growing concerns about inflation. The DIVA investment index, which measures the investment mood using a self-developed index, has risen from 41.1 to 46.7 index points since the previous survey six months ago.
The BDV, associated with the financial distributor DVAG, conducted the survey, which was based on responses from 2,000 consumers and 800 members of the BDV. Among 18- to 29-year-olds, support for stocks has decreased slightly since the previous measurement.
The "equity-based investments" that DIVA counts include both individual stocks, funds, and fund-based insurance with a high equity component.
Historically, equities tend to outpace inflation over the long term because companies can often raise prices, thus maintaining profits despite inflation. Certain sectors like small-cap stocks, dividend growth stocks, consumer products, financials, energy, and emerging markets tend to be better inflation hedges. Stocks in industries rebounding post-pandemic, such as travel and leisure, are also favored during inflationary periods.
Whether the renewed interest in stocks among Germans will persist this time remains uncertain. However, 94% of financial advisors surveyed by DIVA believe that stocks are the best protection against inflation.
For income-oriented investors, high-dividend yield ETFs like Vanguard’s VYM can provide both growth and income that may keep pace with inflation. Treasury Inflation-Protected Securities (TIPS), U.S. government bonds indexed to inflation, offer a direct and low-risk hedge against inflation by adjusting principal and interest payments with the Consumer Price Index.
Real estate, especially residential properties, is another traditional and effective inflation hedge. Property values and rental incomes usually rise with inflation, preserving capital. Real Estate Investment Trusts (REITs) also offer inflation protection without direct property ownership, benefiting from increasing rents and property appreciation.
Precious metals, such as gold, are a classic inflation hedge because their value typically rises when currency purchasing power falls. However, they can be more volatile and might not generate income, unlike stocks or real estate. They are often considered a safe haven rather than a growth asset during inflation spikes.
Commodities beyond gold (e.g., oil, natural gas, agricultural products) can be powerful inflation hedges but involve higher volatility and complexity.
In conclusion, stocks and real estate are broadly regarded as the top inflation hedges for growth and income potential, with precious metals serving more as a portfolio diversifier and safety asset. TIPS provide guaranteed protection but with lower growth. The ideal choice depends on the investor’s risk tolerance, investment horizon, and income needs.
In light of the growing interest in stocks as a safe investment against inflation, more individuals might consider other forms of personal-finance investing, such as investing in equities that historically outpace inflation over the long term. These equities could include small-cap stocks, dividend growth stocks, consumer products, financials, energy, and emerging markets, which are known to be better inflation hedges.
Furthermore, for those seeking both income and growth potential that may keep pace with inflation, high-dividend yield ETFs like Vanguard’s VYM could serve as an attractive option. Alternatively, Treasury Inflation-Protected Securities (TIPS) offer a direct and low-risk hedge against inflation by adjusting principal and interest payments with the Consumer Price Index.
