Renowned Investment Banker Gerd Kommer Highlights Mistakes Young People Should Avoid with Their Money

Gerd Kommer, a prominent German investment banker, entrepreneur, and author, has gained recognition for his critical stance on active investment strategies. Kommer advocates for a comprehensive reliance on Exchange Traded Funds (ETFs) and passive index funds, promoting a long-term, cost-effective, and risk-diversifying investment approach.

As the author of the bestselling book “Investing Sovereignly with Index Funds and ETFs,” Kommer has become a prominent figure in the investment world. His work emphasizes the importance of a well-planned investment strategy based on passive index funds to achieve sustainable and lasting wealth accumulation.

Kommer’s extensive experience in the financial industry spans various countries and roles. He began his career as an analyst for a consulting company and later worked in banks across Germany, South Africa, and the United Kingdom. Before establishing his own company, Gerd Kommer Invest GmbH, he held a leadership position at an asset management firm in London, overseeing approximately 16 billion euros.

Insider recently had the opportunity to interview Kommer, who shared insights into the biggest financial mistakes young people should avoid:

1. Wealth accumulation through interest-bearing bank deposits Kommer asserts that relying on interest-bearing bank deposits for wealth accumulation is a misguided belief. He explains that over the past 120 years in Western countries, considering inflation and taxes, interest-bearing bank deposits have never led to substantial and lasting wealth. At best, they can help preserve existing wealth, but even that can be eroded by inflation over time.
2. Capital-building life insurance policies as wealth-building products Kommer cautions against considering capital-building life insurance policies as sensible wealth-building tools. He highlights their low returns and the difficulty for laypeople to recognize the underlying risks. These policies often have low returns due to significant portions of premium payments being allocated to administrative fees and insurance coverage. There is also the risk of insurance companies facing financial difficulties, which could jeopardize the guaranteed payout.
3. Gambling on the stock market Kommer strongly advises against gambling or speculating on the stock market with the hope of becoming rich quickly and effortlessly. He stresses that financial markets are influenced by numerous factors beyond individual control, making it highly unlikely to achieve substantial wealth through gambling. Even experienced traders can suffer significant losses. Kommer believes that the most reliable path to wealth is through hard work, excluding alternative routes such as inheritance, receiving large gifts, or marrying into wealth.
4. Postponing saving Kommer highlights the common mistake of young people living from paycheck to paycheck without a defined savings plan. He emphasizes the importance of saving regularly and starting as early as possible. The compounding effect over time can result in a substantial sum. Kommer advises young people to invest at least 10% of their net income each month, stressing that for those starting retirement savings at age 45 or later, 10% may not be sufficient.

Kommer’s insights serve as a valuable guide for young individuals seeking to establish a solid financial foundation. By avoiding these common mistakes and adopting a prudent investment approach, they can lay the groundwork for long-term financial success.