Why are Germans so reluctant to invest in stocks?

Continental Europeans are much less inclined to invest in stocks and mutual funds than Anglo Saxons. The ECB’s 2021 survey of household finances and consumption showed that on average, 15.4% of German households invest in shares and 20.6% invest in mutual funds. Across the EU the averages are even lower at 10.9% and 12.9%, respectively. In the UK, 23% of households participate in the stock market and in the US, it is a whopping 61%. But why are Germans (and probably many other Europeans) so reluctant to invest in stocks?

While there are many surveys among households that have looked into this question, a group of German researchers tried to dig deeper. Instead of using standardised questionnaires sent to thousands of people, they conducted in-depth structured interviews with 25 volunteers. Interviewees were not told that the focus of the interview would be on stock market participation but rather abut their savings and investment behaviour in general.

This kind of qualitative study allowed to uncover new factors that may have been missed in traditional questionnaires and surveys. And indeed, the researchers did find a surprising factor that I hadn’t heard of before.

But before I get to that let me show you two results that have been documented in similar form before. But they are such egregious investment mistakes that they bear repeating.

Here is the number of stocks investors and non-investors think they need to invest in. These results are from a survey of more than 400 Germans conducted by the researchers to identify the right interviewees.

Most investors invest in one to five stocks and non-investors tend to agree. They said that if they would invest in stocks, they would most likely invest in a similar small number. When asked what prevents them from investing in more companies, they cite the rising costs and the difficulty in following that many companies as key reasons. And no, they don’t come up with the idea that they could simply invest in mutual funds or ETFs to diversify their portfolio…

How many companies do/would you invest in?

Source: Duraj et al. (2024)

Here is how often these investors think they have to check the performance of their investments.

How often do you need to check your investments?

Source: Duraj et al. (2024)

In short, the average investor think they can get away with investing in one to five stocks that they check at least once every week.

I cannot emphasise enough how bad this is. This is an almost sure-fire way to ruin your performance. In 2019, I wrote an entire series of 22 articles about how to be a better investor and why certain behaviours lead to poor performance. Rule 4 and rule 8 directly address what is wrong with highly concentrated portfolios and checking them too often. If you think that there is nothing wrong with having a handful of stocks and then watching them daily or weekly, you may want to read the whole series.

But one result stood out to me in this qualitative research. During the interviews, when people were asked why they didn’t invest in equities, they often said (one in three respondents) that equities were too risky. But by far the most common reason why people wouldn’t invest in stocks (about half of all respondents) is that they thought it is too expensive and too tedious to set up a stock or fund portfolio.

This is obviously not at all the case in a world of broadly diversified ETFs and discount brokerages. Yet, people still think that it is expensive and cumbersome to build and maintain a portfolio. This is by the way true for both non-investors and investors. The key difference between the two groups is that stock market investors have people around them (like family, friends, or financial advisers) that they trust and that help them overcome this initial hurdle.

So here is a tip if you are writing for a newspaper or website that provides personal finance advise in Europe. Focus less on which stocks to buy or how risky or not the market is. Focus on how easy it is to get started. I think you will have much more impact by doing this than with other topics you may write about.