French savings currently amount to 6,185.7 billion euros, with many individuals opting for low-yield accounts, leading to potential value loss. Investing wisely requires assessing personal financial goals and maintaining liquidity. Life insurance offers tax benefits and diverse investment options, while stock markets provide opportunities for growth through dividends and managed plans. Real estate remains a stable investment, especially in urban areas. Diversification is crucial to mitigate risks and enhance returns, even during market fluctuations.
The Current State of French Savings
A staggering total of 6,185.7 billion euros represents the savings amassed by the French, according to the Bank of France. Many individuals choose to park their funds in current accounts, savings accounts, or life insurance with euro funds. Unfortunately, these options typically yield minimal returns, and some even fall below the inflation rate, leading to actual losses in value. Alarmingly, the Bank of France estimates that over 1,600 billion euros are earning little to nothing. As of February 1st, the interest rate on the Livret A has dropped to 2.4%, with potential decreases on the horizon. Consequently, the returns on savings in this account are increasingly unsatisfactory.
Smart Investment Strategies for Your Money
So, where should you invest your money to achieve better returns? Unfortunately, there is no one-size-fits-all solution. It’s crucial to assess your immediate and long-term financial needs, aspirations, and projects. Maintaining liquidity is also vital; it’s advisable to keep at least three months’ worth of salary accessible for emergencies or planned expenses, such as a vacation. In this case, the Livret A remains a suitable option, as it offers liquidity. However, if your goal is to grow your wealth, consider exploring long-term and potentially riskier investment avenues. Below are some promising alternatives.
Life Insurance: Your Financial Toolbox
Life insurance is often referred to as the Swiss army knife of savings. It provides tax advantages after eight years, along with flexible management options and a diverse array of investment choices. This financial instrument allows you to balance risk and reward by investing in more lucrative yet riskier assets like unit-linked accounts in SCPI, stocks, or bonds, as well as safer euro funds. Importantly, capital invested in euro funds remains accessible. For those unfamiliar with market dynamics, consider placing your unit-linked accounts under management, where a professional can actively adjust your investments in response to market conditions. Just be mindful of the potential for high management fees and tax implications if you withdraw funds before the eight-year mark.
Stock Market: Harnessing the Power of Investment
Investing in the stock market offers several avenues: purchase individual stocks, allocate your unit-linked accounts from life insurance into stocks, or opt for a stock savings plan (PEA). The recent decline in central bank interest rates has historically been a boon for stock markets, as it reduces corporate debt burdens and encourages investment. Frédéric Rollin, an investment strategy advisor at PICTET Asset Management, suggests focusing on companies that provide generous dividends and maintain low valuations. However, managing a stock portfolio can require significant research and effort, so consider entrusting a specialist to handle it through mutual funds.
Alternatively, you might explore a managed stock savings plan (PEA), designed to stimulate individual investment in the stock market by purchasing shares of both listed and unlisted companies as well as French and European equity funds. The diversification of a PEA allows you to mitigate the impact of any single stock’s decline since it comprises various holdings. Note that each adult is limited to one PEA. According to Karl Toussaint du Wast, a wealth management expert, ‘On a ten-year scale, 99.9% of stocks become profitable.’ Keep in mind that while dividends and capital gains are exempt from tax if reinvested, any withdrawals may incur taxes after five years. Regardless, all capital gains are subject to social contributions of 17.2%.
Real Estate: A Reliable Investment
With falling interest rates leading to reduced mortgage costs, real estate remains a reliable option for capital growth. Demand for housing continues to surge in urban areas as families seek larger homes and students look for proximity to their educational institutions. Consequently, real estate values tend to remain stable or only dip slightly over short periods. Tax incentives are available for various real estate investments, such as zero-interest loans and serviced residences.
For a more affordable entry into real estate, consider civil real estate companies (SCI) or real estate investment companies (SCPI), which allow you to own shares in commercial buildings, offices, or residential properties rented to individuals. This diversification helps spread risks and secures potential rental income. Your shares can provide returns on a monthly, quarterly, or annual basis, proportional to your investment. Additionally, you can liquidate your shares whenever you need cash. The significant advantage is that a management company handles property management, maintenance, and tax obligations on your behalf. SCPIs reported average returns of 4.5% in 2024; however, be cautious of entry fees exceeding 10% and the unpredictable nature of portfolio renewals.
The Importance of Diversification in Investing
In investing, diversification is essential. Move funds out of low-yield current accounts, allow your investments to work for you, and embrace the possibility of temporary market declines. Investment professionals often remind us: ‘It is during market downturns that future growth is cultivated.’