My sister lives in Germany and just told me she started saving money for the kids’ college using this aktionbond instrument. What is it and how does it work?
She says they’re giving her 10% per year. That doesn’t sound right to me. I can’t find anything on google relating to this in English. Can anyone help?
Posted Feb 4, 2020, 2:41 PM UTC
Possibly an "Aktienanleihe"? Which is a constructed product that "reduces" risk compared to a stock but caps returns. Details depends on the specific product, i.e. under which conditions it will have which return.
If it's this, it's not a good product. Just one that banks can sell to their customers because of the high interest rate that it can be marketed with.
I'm living in Germany and I think modt probably she means "Aktienanleihe". This thing has been going through the media here lately. Since people here are rather afraid of the stock market, banks sell those products.
She said it’s aktienfonds. I’m not sure what those are. Is it a type of account that you put money in and then use that money to buy equity funds?
That's an equity fund, yes.
"Aktionsfonds" is the closest real word that isn't the more obvious "Aktienfonds".
If it's that, then it's a "free" way of regularly buying parts of some ETF. Generally a good thing, especially for kid's savings.
However the ETF that her bank sold her, will probably be some expensive mixed funds with only a small amount of stocks (the rest being negative yielding bonds).
Whatever it is ... 10% p.a. means high risk .. hands off !
If you want more details please post a link to the product
Are you sure it is an aktionbond? Never heard of that. May you are talking about Aktienfond, that would be an equity fund.
Ok she said it is indeed aktienfond. She said it’s a government program. So am I to understand it’s like an etf or an indexed equity fund, or is it a type of savings account in which you buy different equity funds?
I’m confused because she’s insistent that it’s a government bond
"Aktienfonds" just translates to "equity fund", it doesn't actually say anything in detail about what she's doing there.
Combined with a government program it could be that she's talking about a "Riester-Fondssparplan" or the like.
Well, it's confusing because funds are not bonds, you should get to know the actual german terms she's talking about to find out more details.
I don’t think she knows herself. I’m trying to advise her because my parents asked me to help her but it seems she doesn’t understand what she bought.
Maybe she mistook something and it's like a DAX etf? 10% guaranteed and backed by the government haha, if this exists I think we would all know about it.
She said it was 10% for the previous year but only because the stock market did well and that level of return isn’t guaranteed. Which makes me think it’s some sort of DAX fund, though I remember the DAX climbing more than 10% last year.
As far as I’ve understood from the responses here is that it’s a type of account and then you use the money you put in it to buy financial instruments. I’m trying to figure what equity fund she bought so I can figure out the expense ratio for it, but I think it’s over her head and she doesn’t know what I’m talking about
There's no such government program, but saving for your child's future, e.g. college, using funds, is an upcoming trend, now available to parents who are not savvy investors. If the product is reasonably priced (e.g. ETF, index funds), this sounds like a good idea.
Of course, advertising 10% gain would be questionable, but last year was good for equities, so historically over a suitably chosen timeframe, the product could have save seen 10% p.a.
And, as other said, there are tax-advantaged wrappers that can contain ETFs. Not sure if this makes sense for children, though, they usually don't pay tax anyway.
Encourage your sister to do some research, but rest assured that such products exists. She probably can send a link from where you could get funds (ISIN), cost, and historic valuation.