At a time when savings account yields are lower than inflation, it would be a shame to let your savings go to sleep. Do you want to make a successful investment? There are many options and players available to you. Since it is difficult to choose and to develop an effective investment strategy, here are 5 steps to follow that will ensure you invest well.
1. Ask yourself what your investment objective is
Before knowing "what to invest in", you must ask yourself the question "why invest? Investing well is above all choosing an investment that suits you. This means that it is not necessarily the most efficient one, because it is too risky. Everything depends on your objective and investment horizon. Indeed, financial assets and in particular stocks undergo cyclical rises and falls, but in the long term, the trend is bullish. Thus :
- If you are investing for the short term (less than 5 years), for example, to buy an apartment, your risk-taking should be contained. Choosing a risky investment exposes you to downward fluctuations and could result in losses when you need your money.
- If you're investing for retirement in 20 years, you can afford to take some risk, since a drop in stock prices during that time will be offset by a rise in stock prices.
Determining your investment objective and time horizon will help you optimize your risk-taking.
2. Investing with the right tax package
The investments you make, whether in individual stocks or in investment funds, must be held in an account. This is called a tax wrapper, because depending on the type of "account" you choose, the tax treatment will be different.
There are three main tax wrappers in France in which you can make financial investments: the securities account, the stock savings plan (PEA), and life insurance.
The securities account
A securities account is an account that allows you to hold shares, bonds, investment funds but also more speculative derivatives such as warrants, turbos, and options. The securities account is mainly dedicated to speculators and informed investors, wishing to buy and sell securities regularly.
However, this type of account does not offer any tax advantages: you will be taxed on the dividends of the shares held and on the capital gains realized at each sale of a security, at the single flat rate (30%, including social security charges) or according to the income tax scale if you choose this option.
Inventory Savings Plan (PEA)
The PEA is a fiscal envelope that allows you to invest in European shares or investment funds that are themselves invested in more than 75% of European shares. It is tax-efficient: 5 years after opening the account, all your earnings are tax-free. However, please note that social security charges are still levied, upon withdrawal, at a rate of 17.2% on the dividends and capital gains realized.
However, this fiscal envelope has its share of constraints, in addition to the impossibility of opting for assets other than European shares, any withdrawal before 5 years leads to the closing of the account. Finally, the PEA has a ceiling of 225,000 dollars.
Life insurance
Life insurance is the most popular fiscal envelope in France. It allows you to invest in shares, investment funds, and structured products as well as in the euro fund whose capital is guaranteed. Life insurance has a tax advantage on two levels:
reduced taxation on the interests and the realized capital gains;
a strongly reduced taxation in the event of succession.
Moreover, life insurance has no ceiling and you can make withdrawals and payments whenever you want.
In most cases, life insurance will be the most suitable tax wrapper, due to its tax regime, the diversity of eligible investment supports, and its flexibility. To help you choose, you can consult this article on the different tax wrappers (securities account, PEA, life insurance).
3. Calibrate the risk of your investments
As mentioned above, investing in listed companies' shares is subject to bearish and bullish fluctuations. However, there is an upward trend due to corporate wealth creation, innovation, and general economic growth. This trend means that the risk of a loss decreases with the length of the investment.
An analysis of historical data shows that for a diversified investment, the risk of loss is about 30% over a period of 1 year, over a period of 10 years it drops to 10%, and finally, the risk disappears completely over a period of 15 years or more. A diversified portfolio has never caused losses over a 15-year period, even when invested at the worst of times (1987 crash, 2000 internet bubble, etc.).
Therefore, your exposure to the equity market must be adapted to your investment horizon. In the short term, you should prefer bond assets, which are less volatile, and euro funds with guaranteed capital.
4. Diversify your investment
The above is only true for a properly diversified portfolio. This is one of the fundamental rules in finance: diversify your investments, or, as the saying goes, don't put all your eggs in one basket. This principle allows you to limit the risks associated with asset volatility and to completely eliminate the risk of bankruptcy.
In order to diversify your investments, it is important to follow these few rules:
- do not limit yourself to a few companies, but several dozen or several hundred;
- invest in all geographical areas;
- invest in all sectors of activity.
For example, if the car manufacturer market is doing poorly in Asia, its poor performance could be offset by an investment in the luxury goods sector in Europe.
To simplify your life and to avoid having to select individual stocks yourself, it is best to choose investment funds, or better yet, ETFs (Exchange Traded Funds), also known as trackers or exchange-traded funds. ETFs are an interesting solution because, in addition to allowing for a high degree of diversification, they also entail very low costs.
5. Don't panic if you see your capital drop
If you have followed the first four steps, you don't have to worry about short-term fluctuations in the market. As an investor, you will have to learn to control your emotions and not let your cognitive biases influence you. There will be times when your investment will go into the negative, but this should not worry you.
Stay focused on your goal and keep a cool head. It's at the end of the dance that we pay the musicians!
What Nalo can do for you
Nalo is an investment company dedicated to individuals. Thanks to our project-based investment approach, we can offer you customized, diversified investments that are calibrated to your projects and financial situation. In order to optimize your tax situation, you can subscribe to a life insurance contract directly on our website.
In addition, Nalo has chosen to invest only in ETFs, thus guaranteeing its clients the most attractive fees on the market.
Post a Comment