Are you the type of person who lets your money sit on your savings books, but you would like to take the next step and start investing?
To make an old dream come true, to make a project come true, to be able to finance your children's studies later on... There are so many reasons that can motivate you to save.
And many decide to put their savings aside in savings solutions.
Two reasons: the impression that it is less risky, and that the investment is far too complicated.
And it may indeed seem like a risk-free strategy. You are sure to get your money back with some interest.
The problem is that you are actually losing money every year by putting it in bankbooks.
Why? Simply because the inflation rate is actually higher than the rate of return on your savings.
This means that by letting your money sleep on classic savings solutions like the Livret A, you lose money. And this time, for sure.
But don't panic: there are other investments, especially via investment solutions, that will allow you to take advantage of the money you have earned.
Note, however, that even if investing pays off more in the long term than saving, you should not forget that it often requires taking risks.
That's why it's essential to learn how to invest your money before taking any risks.
What is investing?
I can already see you behind your screen, eyebrows raised to the sky:
"Thanks a lot, Solene, but I'm not that much of a beginner.... 🙄"
But it's a point I wanted to make anyway, and for an important reason: there are different ways to invest. And when you're just starting out, there's often a tendency to confuse everything.
First of all, there are many things you can invest your money in: the stock market and real estate are two of them, but there are also more exotic investments like wine, art, etc. (which should only represent a small portion of your total investments).
And the problem is that we often think that investing our money is like "betting" on the success of one or more companies or sectors we believe in and betting everything on their success.
Or to jump on the latest trendy investment, like crypto-currencies, hoping not to miss the boat.
And these examples are indeed a form of investment. But it's far from the only one - and very far from being the ideal solution when you're just starting out.
This brings me to my next point...
Difference between investment and speculation
If you're just starting out and have no knowledge of trading, what you want to do is invest your money, not speculate.
Investing
Investing is defined as "placing your money with the intention of getting a return". When you invest your money in the stock market (or elsewhere, such as real estate), you hope to ultimately get your capital back, with some appreciation.
The key is that you are primarily looking to invest your money for the long term, in the hope of a positive return.
This doesn't mean that investments are risk-free, but that you expect a much lower risk than in speculation (and therefore a lower potential return as well).
Speculate
Speculating is putting money into financial media (stocks, cryptos, etc.) with a high probability of failure, to get short-term gains. Speculators look for abnormally high returns - they "bet" on companies or sectors hoping to achieve significantly higher than average results.
They buy stocks, only to hold them for a short period of time before selling them, hoping to resell them at a profit.
It's all about risk. Buying individual stocks (e.g. deciding to start investing by buying shares of Française des Jeux) is risky behavior, since you are putting your money into a single company in the hope that it will increase in value.
And the risk is even greater if you don't know the industry and/or how the stock market works.
Professional speculators (traders) seek to make an informed decision about the financial condition and direction of a company. They don't invest in a stock just because they heard it was rising in value on the TV news: this is professional analysis.
What to invest in?
1. Investing in the stock market
The stock market is simply a market where buyers and sellers come together to trade financial instruments such as stocks.
Simply explained, companies go public to raise money easily and finance their development.
And when you buy a stock, you become the owner of a share of the company.
Then you can earn money either through capital gains or dividends. We won't go into the details of how they work here, but if you want to know more, you can read our complete guide to the stock market by clicking here:
To trade, it is important not to confuse what you invest in (stocks, bonds, etc.) and the account through which you invest (PEA, life insurance, securities account, etc.).
To go even further, the account you invest in is different from the institution you invest in. For example, several establishments offer PEA, life insurance, or securities accounts.
In this section, we present different examples of investments that will help you understand more clearly what you are investing your money in.
The different asset classes
Equities
To explain it simply, by buying a share of a company, you acquire a part of this company, or more precisely a part of its capital.
It is therefore a title of ownership, which gives you the right to a part of the company's profits. This means that the success of your investment is dependent on the success of the company.
Stock prices fluctuate throughout the day, but investors expect that over time, the company's shares will increase in value.
In exchange for your investment, the company may also pay you a portion of its annual profits. How do you do this? Through what is called a dividend per share.
Note
Many people who start out in the stock market without knowing much about it decide to buy shares "outright", i.e. one company or several limited liability companies.
This is rarely the best strategy because your diversification (not putting all your eggs in one basket) is less than optimal. If the price of one or more companies falls, your investments can be severely impacted.
It is better to use funds or ETFs, which are baskets of a large number of stocks and/or bonds, and which allow you to diversify easily at a lower cost.
Bonds
Bonds are different from stocks, but they too are related to stock market investing. They are often incorporated into a stock market investment strategy as a way to limit risk, depending on your investor profile.
When you buy a bond, you are lending money to a company or government that then pays you back that loan at a fixed rate of return.
It's a safer investment than stocks, but it still carries risk. That's why they are a key ingredient in a diversified investment portfolio, especially to help balance risk over time.
For example, if the stock market crashes, bonds can sometimes help cushion the blow.
Euro funds, such as those found in life insurance, are generally composed mostly of government and corporate bonds.
And unlike equities (or units of account on multi-support life insurance policies), the performance of euro funds is guaranteed.
The different types of accounts to invest in the stock market
We can never repeat it enough: to make your assets grow, it is practically essential to go beyond "classic" savings books and move towards investment solutions.
But the advantage of savings accounts, besides being risk-free (even if they technically make you lose money every year), is that they are easily accessible.
And when you're wondering how to invest your money, it can be hard to know where to point you.
In this section, I present a selection of the most popular types of accounts.
Life insurance
Life insurance has many advantages.
First, it is a particularly accessible investment. You can choose the type of payment that suits you: programmed, punctual, or even no payment at all (in the case where you already have an invested sum that you wish to let grow).
Versatile, the investment in life insurance can adapt to all your needs and all types of projects (real estate purchase, studies, preparation of an inheritance...).
Finally, one of its main advantages lies in taxation. Indeed, with the exception of social security contributions on the euro funds, there is no taxation as long as you do not make any withdrawals. The tax on the interests is applied in the case of a partial repurchase but in a degressive way.
The problem with life insurance is often the range of investments offered, which can be very limited and whose performance varies greatly depending on the financial institution where you open it.
Fees can also vary greatly from one life insurance policy to another, and comparisons are often difficult.
The regular stock account
To buy shares on the stock market, you can use an investment vehicle called a securities account. This is the account that will allow you to execute orders on the financial markets.
It will be linked to your bank account to allow you to buy and sell your shares.
The securities account has no ceiling, nor any international limit. You can therefore theoretically buy shares and funds from all over the world (depending on the institution where you open your CTO).
Withdrawals can be made at any time. But unlike other investment vehicles, there are no special tax advantages to a securities account.
If you are looking to open a securities account, we particularly recommend DEGIRO, one of the best online brokers with some of the lowest fees on the market.
2. Investing in real estate
There are different ways to invest in real estate - and not all of them are alike.
In any case, if you're not particularly interested in the idea of rental investing, don't panic: it's not the only way to invest in real estate.
Here is an overview of- the different ways to invest in real estate.
Rental investment
This is generally what comes to mind when we talk about real estate investment: buying a property to then rent it out and earn rent.
It can be an apartment, commercial premises, or even parking lots or cellars.
You become a lessor and have new responsibilities towards the tenants of the property you put up for sale.
For rental investment, acquisitions often involve a credit purchase. This is ultimately an advantage: it can allow you to develop your investments more quickly thanks to the leverage effect.
But overall, larger sums of money will often come into play vs. stock market investments that can sometimes be made from as little as one cent.
You should also know that there are several ways to invest in real estate (with different tax incentives). Many people choose bare rental by default, which is not necessarily the best solution.
It's a big purchase, with a lot of money at stake: you should really take the time to find out and do different simulations to know what's worth it for you.
What if you are afraid that rental investment is not for you? Maybe because you don't know much about real estate, or you don't have the time to manage a rental property?
You can use platforms like Beanstock, which will help you find, finance, AND manage your rental investment.
When to start investing?
You've heard it said many times that it's never too early to invest your money.
Investing is the best way for you to secure your financial future, but be aware that age plays an important role in this strategy.
In general, the younger you are, the more opportunity you have to take risks because you have more time to make up for any losses. But that's also when you have the most potential for gains, especially through the effects of compound interest.
On the other hand, the older you get, the more you should limit your exposure to risk. In case of losses, you may not have time to wait for the market to recover.
Investing when you're young is not easy. But the earlier you start, the more likely you are to succeed with your investments. Time is always an excellent ally. But you have to be careful not to make hasty decisions or take rash risks that will cause you to lose money.
Attention
This article is for information purposes only. Before making any financial decisions, consult a (real) financial advisor.
Investing carries a risk of loss.
Post a Comment