30 Mar 2024

Choosing a private pension component

Submitted by blizzz

There are a lot of things out in the world that catch my interest and curiosity. That I like to dive into, and learn more about, and get excited about. Contemporary financial things are not one of them. And also I only have limited trust, to put it polite, in the various actors around financial products. It feels like swimming in a shark pool.

There are chores in life that just are not fun, but are better done anyways. So with all the discussions that we are having about the pension in Germany, and all the bits of information that went in and out my head (with whatever was stuck) over the passed years, it ultimately felt like it is needful thing to act on – financing the retirement.

Und wenn alt werden sich noch lohnt
Warum muss meine Mutter dann
Mit 74 Jahren noch ran
Und jeden scheiß Tag zur Arbeit gehen?

"Von unten nichts neues" by Pascow

So state pensions will not be that much. Inflation will eat its share. Taxes will be going off. Consultants are talking of a gap between the money you need to finance your life(style) and the money you will have available. It is coined Rentenlücke and one might have the idea to close theirs.

The scenario

Back at my first job, I signed up for a Betriebliche Altersvorsage, which I do not understand much about, to be honest. Nevertheless, I have it, and it is a stable addition to the state pension, and meanwhile it also has to be subsidized by the employer a bit. And yet, still the summary of expected state pension and betriebliche Altersvorsorge are not the same as today's salary.

Or whatever my future expenses will be. Likely not feeding the kids, but how all other costs develop though, and what happens along the way, that's a blank pages and not really predictable.

Not inheriting rich and not having much on the accounts either, the options are already limited. With less then thirty years ahead, there is also not too much time for very risk-free options, as interest rates are pretty much down.

Everybody is talking about ETFs

And so the spotlight turns to something with shares.

They™️ are talking about ETFs for a good while now. Some independent institutions, like Finzanztip, keep recommending it. ETF is short for Exchange-Traded Fund and that does tell only little more than the pure abbreviation. ETFs are set up by financial institutions and try to resemble or follow a sort of index, which again are set up to track the performance of a stock market. And that can be formed to follow a region (even down to countries), sectors (a couple of related industries) or stock markets (e.g. NASDAQ) for example. They can be formed with different criteria, even including being "ethical" or "sustainable" – so much the theory.

Some friends I talked also decided that ETFs are a worthy solution, and are investing their money there. Altogether it does not look too much of a scam, this type of product is already there for a decent amount of time, and I did not sense any fundamental hooks.


The conscience awakens

Personally, when I act, I try to take into consideration what the consequences are and what and who I support with my decisions. I care about the well-being of others, and about the future of our living space (the planet should be liveable for my children as well). Ethical and sustainable factors are important to me.

Whether or not to consider shares is such a first question. On a trade exchange there are no small companies, and the larger the corporation, the more evil it is. Buying shares is supporting them – not directly as they themselves do not see money when shares are bought (unless they are freshly handing them out), but indirectly by increasing they evaluation and thus enabling them to fund money more cheaply and easily. This strengthens their economic power and possibly political influence.

Also, it is cumbersome to purchase and deal with shares individually. Apart of the missing interest in this topic, the risk can be spread only so much around different hand-chosen companies. Each transaction also has their cost, making this approach less efficient.

ETFs and Investment Funds do not have this disadvantage. The provider of the ETF or fund is buying everything on the investors behalf. With the leverage of a lot of monetary resources the can buy more shares, of more companies, and reduce the risk. However, with that power given they also act as share-holder – as co-owner of the company they will also exercise the rights on the customers' behalf, ultimately in their own interest.

And there was risk

Risk was mentioned already before, but how does it manifest? It boils down to the variations in the stock prices. Eventually profit can be realized only when selling the shares, and at a higher price than they were bought.

Promoters of share-related products keep saying that there is a risk, but over time, given enough time, the graphs go uphill and you will end up with a profit when investing ten years or more. Crisis happens regularly, of course, but eventually the stock prices will go up again, and go higher again.

Part of the story is also that there is change, companies die and develop, and so do industries, and so entire regions have hard times, and good times. The recommendation is to diversify. So best is to get a mixture of everything from everywhere: any region, any industry. If single companies or places have issues, the size and collection of the fund will equalize shortcomings.


There is a lot of documentation about products like ETFs and investment funds. Several facts, numbers and also goals, intentions and target groups are included in there. In the end, the selected fund should – apart of being diverse - be not too young and and not too small in terms of how much money invested so far. This should give certainty that a fund will not be resolved – as an investor it is not an issue per so, but one probably does not want to deal with that, and taxes may apply.

Then also the the biggest items of the portfolio are listed as well as the region. One can see in which companies the investments went so far and also into which regions. Then even when you chose to see "sustainably" funds only, watch out for red flags. I found Nestlé. And the majority contains GAFAM Google (Alphabet), Amazon, Facebook (Meta), Apple and/or Microsoft shares. When concentrated, this is already a risk (US tech sector), but those companies also represent everything I despise.

In fact, after sifting and sifting and sifting through ETFs, I had a shortlist list where each and every candidate was having a drawback. I was not happy, not satisfied, but had stomach aches and decided for none of them.

Actively managed Investment Funds

ETFs are having other advantages on the efficiency level. Especially unmanaged ones – those that are controlled via software as they follow an index only anyway – have little side costs. So they do not cut into your yield too much, as long as you pay attention when choosing them.

Since I lost my appetite for ETFs anyway, I looked out for actively managed funds. There are humans involved, typically they do not perform as well normally, but there seems to be a much bigger choice of funds. And so I could find one that was sufficiently convincing, not too expensive, and not obviously holding despicable positions. The fund is also managed by one of the lesser evils. And I have a savings plan where I funnel a small amount monthly into that fund.

How I feel with that choice

My impression is that I understand sufficiently enough to make a decision, and to make this decisions. I do not have stomach aches with that. During the research process I did not rush things, I slept over some ideas, and corrected some on the way, all in all it took me weeks from concrete research until action.

I did not turn the whole thing into a rabbit hole either. I could investigate in several directions more deeply, or could try to calculate some aspects more accurately, but there have to be some lines where to stop, at some point it is good enough (and there I other things in life I want to spent my time on).

Whether this is the right decision, I still have no clue. There is a good amount of uncertainty, especially in this political and environmental climate. It is an attempt to prepare, and I come to the conclusion it is reasonable, yet altogether I am still unsure to some degree. But it is okay. And perhaps I am overthinking this already, which might be just a boring, ordinary and obvious action for anybody else. Perhaps it is just a case of growing up with a German savings book mentality ;)

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