Invest intelligently: Digital securities score points compared to traditional funds

2020 was a special year in many ways. Numerous areas were “slowed down” by the global, pandemic-related lockdowns and restrictions — while others picked up steam. Digitalization, for example. Disruptive technological developments changed the way we work and communicate. They shaped our shopping behavior, led to an e-commerce and parcel boom and influenced our payment and investment behavior.

In particular, two “typically German” practices were broken: The preference for cash and savings. that Retail Research Institute EHI claims that 2020 was the fastest-growing year for electronic payments in Germany since the surveys began. Especially because retailers and supermarkets have increasingly promoted contactless payment for hygiene reasons to protect customers and checkout staff. German retailers primarily paid by card (55%), although EHI still sees growth potential in the coming years due to the trend in smartphone payments and contactless payments, which already account for a good half of card turnover.

Wealth creation today: Securities replace interest-bearing savings

In addition to payment behavior, the saving and investment behavior of Germans also changed in the past year. Since, on the one hand, consumers spent less on traveling or going to restaurants and, on the other hand, set aside more money due to economic uncertainties, According to a study by DZ Bank, the savings rate rose to a historic high in 2020: In the second quarter, this was over 20% in Germany — the highest figure since reunification. According to data from Deutsche Bundesbank The financial assets of private households in Germany rose by 253 billion euros or 4% to 6,630 billion euros at the end of June in the second quarter of 2020. For the year as a whole, financial assets reached a record level of 7.1 trillion euros.

According to this, since the outbreak of the corona pandemic, Germans are, paradoxically, richer than ever. Which is why many savers are faced with the question: Where to put the money? Interest-bearing forms of investment such as savings accounts or overnight money are developing into capital destroyers in the long term due to the ongoing penal or zero interest rate era: As a result of extremely low interest rates and the resulting investment backlog, private households in Germany have suffered net interest losses of 379 billion euros since 2010. Including pension securities and insurance investments, the figure was as high as 732 billion euros in the past eleven years.

Among other things, due to a lack of alternatives, Germans discovered profitable tangible assets as an investment opportunity in 2020. In addition to real estate, the focus was primarily on securities such as stocks or funds. Although, according to the DZ Bank study in 2020, just under seven percent of private financial assets were invested in these types of investments, financial wealth creation in the form of shares rose to 28.5 billion euros. This is 2.8 times the net investment in the same period last year. Funds and certificates also recorded cash inflows. A positive development, especially as DAX figures alone in historical average, a yield of 8.3% p.a. can be realized.

Tokenized securities for the new generation of self-determined investors

An investment or security token represents certain assets and rights in digital form, which are stored on the blockchain. In principle, investment tokens of various tangible assets, such as securities, real estate, works of art or classic cars, can be represented on the blockchain. Depending on their capital investment, investors receive digital shares in the selected investment property and benefit from any subsequent sale proceeds and current income (e.g. rental income).

• New investment opportunities for private investors

Tokenized tangible assets also give retail investors the opportunity to invest in asset classes that were previously reserved only for professional investors.

• More flexibility

Digital assets offer more flexibility than traditional illiquid assets, as they can be traded via the blockchain at any time. Investors can build up a diversified portfolio of tangible assets with just a few hundred euros.

• Cost benefits

Since fixed and ongoing costs for intermediaries or storage with central securities depositories are largely eliminated, tokenized securities are significantly more cost-effective — which can have a positive effect on returns if the cost benefits are passed on to investors.

Tokenized securities are suitable for self-determined Investors who want to put together a diversified and stable multi-asset portfolio with maximum flexibility, control and cost efficiency.

Traditional funds enjoy trust as an established market player

However, some investors do not have the time, interest or expertise to manage a (digital) portfolio themselves and therefore prefer to rely on fund managers. In doing so, they hand over control of their portfolio to an asset manager who manages the investment entrusted to them externally. In return, funds sometimes incur spending premiums, transaction fees and performance-related compensation components that are at the expense of returns.

• Established market

Funds and other traditional forms of investment have been established on the capital market for decades and have a correspondingly high level of acceptance among market participants. Since advisors and clients often already have basic knowledge of traditional securities, the barrier to entry is lower than with tokenized securities.

• Tradability via house bank

Traditional money market products can be traded relatively easily via the bank's accounts. Investment tokens, on the other hand, are traded on specific platforms that are often not (yet) linked to financial institutions.

Classic investment products are suitable for traditionally oriented investors who value personal contact with their house bank and prefer long-established capital market products over financial innovations.

Conclusion: Prior financial knowledge and personal preferences are decisive

Whether classic or tokenized: Securities are generally a useful addition to the portfolio. Depending on their personal preferences and previous knowledge, investors should therefore decide for themselves whether they entrust their capital to fund managers or rely on their own skills to actively build up financial expertise.

If, in the future, more banks, brokers or asset managers decide to use token infrastructures on their platforms as well via Open banking features Investors may no longer have to decide to integrate, but benefit from a wide range of options — conveniently with a single access via the online portal of their choice of choice.