Seven money lessons from the darned year 2020

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Corona, Wirecard, Gold-Rally: Anyone who invested their money this year has experienced a lot – and learned a lot. Seven thoughts on a year to remember for our finances.

2020 was a turbulent year for investors. For the first time since the global financial crisis in 2008, the global financial markets experienced a rapid collapse in prices, and within a few days the fear of the corona pandemic pulverized securities assets in the trillions in the spring.

So a pitch-black year for the stock market and everyone who has invested their money? Not necessarily. Already now, at the end of the year, many stock indices are again trading near their previous highs. And 2020 did not go badly for other asset classes such as real estate and gold either.

Why is that? And what exactly does that mean for investors? t-online puts up seven theses, thoughts and lessons from the darned Corona year.

1. A new generation of stock exchanges is born

The stock market is “in” again. What at first glance seems absurd in view of the global corona shock, is only logical at second glance. Because although many employees had to accept income losses due to short-time work, the savings of Germans have increased considerably in the current year.

Because many trips were canceled, private wealth in Germany is likely to grow by around 3.9 percent this year, according to Allianz’s Global Wealth Report. This saved money has to go somewhere – and the choice of profitable investment opportunities is becoming increasingly scarce, the investment emergency growing.

Because the corona crisis and its fight also taught us that: The zero interest rate phase will probably continue for a long time. Many people seemed to realize that in 2020 and started looking at stocks and index funds, or ETFs for short.

We quickly felt this trend, this new generation of stock exchanges, direct banks such as the DKB, Consors or Comdirect. In the first half of the year, according to a report by the “Frankfurter Allgemeine Sonntagszeitung”, they recorded a record in demand for depots. At ING Germany alone, around 210,000 private customers opened their own securities accounts from January to June – almost 50,000 more than in the entire year 2019.

The so-called neobrokers such as Trade Republic, Smartbroker or JustTrade were also the drivers and beneficiaries of this development. The number of such low-cost providers, who, following the American example of Robinhood, appeal to younger people with smartphone apps, grew in 2020. They took advantage of the fact that during the first lockdown, many people had time and boredom and therefore began to deal with the stock market.

The positive side effect: The very low fees charged by neobrokers will, in the medium term, also induce established banks to charge lower order fees. If the new stockbrokers are not pure gamblers, this should give the share culture in Germany a lasting boost.

2. The economy and markets are decoupled

The fact that the future is being traded on the stock exchange is nothing new. What was new in 2020, however, was how extreme the actual economic output, the economic data of the real economy and the events on the financial markets diverged.

While the economy practically came to a standstill due to the first hard lockdown in March and April, and the number of short-time workers in Germany and the number of unemployed worldwide soared, the stock markets started an unprecedented recovery rally after the corona shock in March.

At the beginning of June, for example, the Dax was again at 12,800 points and thus only less than 1,000 points away from its all-time high from February. As a reminder: In the Corona crash until mid-March, it went downhill from exactly this point by almost 40 percent to just over 8,400 points.

This disintegration of the economy and markets was even more evident in autumn than in spring, when Europe and America were hit by the second corona wave. Although no vaccine gave cause for optimism, share prices continued to rise, the US leading index Dow Jones even reached a new record high, the leading German index Dax followed shortly after Christmas.

The most important reason for this phenomenon: There is no end of money; governments and central banks pumped it into the economy in piece to fight the crisis. As a result, investors relied on the aid packages to stabilize companies – or simply postponed their investments from classic value stocks to tech stocks that benefited from the crisis instead of liquidating their holdings entirely.

3. The gold rush is back

2020 wasn’t just the year the cryptocurrency Bitcoin tripled its value. The price of gold also rose significantly. In the meantime, investors had to pay a record price of 2,069 US dollars for the troy ounce. Over the year as a whole, the value of the precious metal increased by around 24 percent; the last time there was a larger increase within a year was 2010.

A typical phenomenon in a crisis? Gold as a “safe haven” for investors who are afraid of large losses in value in the financial markets? Yes and no. It is true that the Corona crisis itself, the sharp drop in share prices in March, caused panic and a flight of numerous stock exchange traders into real assets.

Much more than that, however, the ultra-loose monetary policy of the central banks and the prospect of more years without interest should have made gold more attractive. Because where securities with good interest rates such as government bonds are unlikely to generate any more income, investors are less bothered by the fact that gold is also a pure store of value that does not generate its own profits, but could protect it from possible inflation.

4. ETFs are largely crisis-proof

Sitting out crises was a good idea even before Corona. At least for all those who invest their money long-term, for example with passive ETFs that use a computer algorithm to replicate a stock index.

But is the recent sharp rise in the number of small investors with ETFs really adhering to this rule? Or do they get so nervous that they sell all their fund shares and – as many managers of conventional funds thought – intensify the downward spiral on the stock markets?

The Corona crisis provided answers, and 2020 has shown that the worries of many experts were largely unfounded. In fact, in retrospect, there are many indications that in the Corona crash in March it was primarily institutional investors who exacerbated the price plunge by selling shares. Conversely, if you believe the statements made by ETF issuers such as Vanguard or Blackrock, the small investors who had put their money in ETFs remained calm – and even often bought more in times of crisis.

5. The Dax has to reinvent itself

It is a debacle that is unparalleled in the history of the German share index (Dax). There is talk of the biggest accounting scandal in Germany, of a business crime of unimagined proportions – and of an embarrassment for Germany as a financial center.

In June, Wirecard was not only the first Dax group to file for bankruptcy. The case of the former stock market star also shows: When checking the books, many people slouched, looked the other way, and possibly knowingly hushed up crimes.

The damage outweighs the pure loss of value of the Wirecard share, which fell from once almost 200 euros to less than 50 cents. On the one hand, the Bafin, the auditors and politicians are now asking themselves many questions. On the other hand, the Wirecard case is also a disaster for the image of Deutsche Börse as the publisher of the Dax.

It is therefore only logical that, in the wake of the scandal, it has tightened the hurdles for inclusion in the Dax and wants to increase the index in 2021. If this new start succeeds with stricter admission and sacking rules, if the Dax establishes itself with 40 instead of 30 listed companies in the future, the German benchmark index should regain the lost trust – and thus become more attractive again for cautious investors.

6. Tech and Asia are crisis winners

Over the past few years, small investors have repeatedly asked themselves how necessary it is to bet on stocks from emerging markets. Some experts were also skeptical about the large price fluctuations in the up and coming “emerging” markets.

They were right about the MSCI World share index, which covers the industrialized countries – and has performed significantly better over the past ten years than its index brother MSCI Emerging Markets, which summarizes the largest companies from the emerging countries.

However, 2020 has shown that anyone who has not invested at least part of their money in these emerging companies is missing out. Because the Asian countries in particular, especially dictatorial China, managed to quickly bring the corona virus under control. The result: the economy picks up quickly after the corona shock.

The same applies to the price rally for tech titles. It is true that the shares of companies such as Google, Amazon and Apple have guaranteed returns over the past few years. In the corona shock, however, they and many other technology stocks not only plummeted less deeply, they then also rose faster and even more than stocks in most other industries.

This is clear from the leading technology index Nasdaq Composite, in which more than 3,000 technology companies are listed. It has increased by more than 40 percent since the beginning of the year.

One thing is clear: Such strong price gains are an exception. It is unlikely that tech and emerging market stocks promise such high price gains in the coming year. However, investors shouldn’t lose sight of the megatrends of 2020 either, because technology will not become less important for the transformation of the economy in the next few years.

7. Corona can do little to harm real estate

Empty offices, closed shops, tenants who cannot pay due to short-time work: Corona could actually have shaken the real estate market.

In fact, however, it seems that the pandemic has little impact on him. The prices for apartments, houses and even commercial space did not fall in 2020, but sometimes even increased significantly. Central to this development are factors that drove prices up even before Corona.

In the metropolitan areas in particular, there is still a shortage of space and housing, and demand is still high. In addition, there is the low level of interest rates: for years, the financing of property purchases has never been cheaper, which is driving demand and prices up.

But it is questionable whether it will stay that way. Will prices continue to rise everywhere – or will Corona ultimately cause lasting shifts in the real estate market?

Work researchers are already assuming that even after the Corona crisis, many employees will spend a greater part of their working hours in the home office. Many companies could reduce their office space as a result.

At the same time, the need for living space is likely to increase further. Those who work more at home may need their own study, more space. To find this in turn in inner city locations is unlikely. Corona is more likely to intensify the trend of urban exodus and increase property prices in the surrounding areas of metropolises.

The t-online editors prepare all articles with journalistic care. We expressly point out that our texts are not a substitute for advice and, in particular, do not constitute investment, legal, tax advice or recommendations to buy or sell securities.



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