Equities: safer than expected?

In a recently published study, Allianz Global Investors (AllianzGI) shows that shares are safer than many people think. Even though the markets are subject to fluctuations, and short-term investments in particular can incur significant losses, shares have been shown to be a good investment opportunity for anyone wanting to increase the purchasing power of capital in the longer term. James D. Dilworth, CEO of Allianz Global Investors Europe, answers three questions.

 

Even low-interest investments carry at least a small risk. So is there any risk-free interest anymore?

 

In truth, the answer to this question is "no". Anyone wanting to increase their capital has to take certain risks on the capital market. As a rule of thumb, the longer the period for which money is invested in stocks, the more likely they are to perform better than fixed deposits or bonds. Particularly when you also take inflation into account, there is no way around equities in the long term.

 

Your company's study is based on periods of up to 30 years. However, not all private investors are prepared to deal in such long time periods. Do they have to do without shares?

 

They don't. Ultimately it's a question of how you allocate and diversify your money. Balanced funds or multi-asset funds are a good way for many private investors to participate, to some extent, in the performance of equities. However, without any assets that give you exposure to the real economy the way equities offer, investors will hardly be able to efficiently increase their capital. Although the 30-year period is beyond investors' usual planning horizon, it is very realistic, particularly with regard to retirement provision or wealth generation for the next generation. However, even over a 10-year period, investments in stocks usually perform better than government bonds or money market securities, as our capital market analysts' study over rolling investment periods has shown. In this study, they looked at US market data from 1800 onwards.

 

Many former shareholders, however, had their fingers burned in the stock market crashes of 2001 and 2008. Are shares more secure today than they were back then?

 

With equities, you can't rule out losses. Investors are particularly likely to be disappointed if they hope for short-term results and only invest for a year. Volatility on an annual basis can be substantial. However, bonds are also subject to price fluctuations. We have to recognize that, as far as bonds are concerned, we are at the end of a bull market. Currently German government bonds are generating returns barely equal to the loss of purchasing power caused by inflation, and if interest rates should start to rise again, these securities will actually begin to lose value.

James D. Dilworth, CEO of Allianz Global Investors Europe: “Without any assets that give you exposure to the real economy the way equities offer, investors will hardly be able to efficiently increase their capital.”
James D. Dilworth, CEO of Allianz Global Investors Europe: “Without any assets that give you exposure to the real economy the way equities offer, investors will hardly be able to efficiently increase their capital.”

As with all content published on this site, these statements are subject to our Forward Looking Statement disclaimer:

 

Marc Savani
Allianz Global Investors
Phone +49.069.24431-4206
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