Are you the type to let your euros sleep on your savings books, but you would like to take the next step and start investing?
Realizing an old dream, making a project a reality, being able to finance your children’s studies later… There are so many reasons that can motivate you to save money.
And many then decide to put their savings aside on savings solutions.
Two reasons : the impression that it is less risky, and that the investment is far too complicated.
And that may actually seem like a risk-free strategy. You are sure to be able to recover your money with some interest.
The problem is that you are actually losing money every year by putting it in bank books.
Why ? Quite simply because the rate of inflation is actually higher than the rate of return on your savings.
Which means that by letting your money sleep on classic savings solutions like the Livret A, you lose money. And this time, for sure.
But do not panic: there are other investments, in particular via investment solutions, which will allow you to take advantage of the money you have earned.
It should be noted, however, that even if investing pays more in the long term than saving, it should not be forgotten that it often requires risk taking.
This is why it is essential to learn about how to invest your money before taking risks.
What is investment?
But it’s a point I wanted to make anyway, and for an important reason: there are different ways to invest . And when we start, we often tend to confuse everything.
Already, there are several things in which you can invest your money: the stock market and real estate are two of them , but there are also slightly more exotic investments such as 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 amounts to “betting” on the success of one or more companies or sectors in which we believe, and betting everything on their success.
Or jumping on the latest buzz investment, like cryptocurrencies, hoping not to miss out.
And these examples are indeed a form of investment. But it’s far from the only one – and very far from the ideal solution when starting out .
Which brings me to the next point…
The difference between investing and speculating
If you are new to the field and have no knowledge of trading, what you want to do is invest your money, not speculate.
Investing is defined as “placing money with the aim of obtaining a return”. When you invest your money in the stock market (or elsewhere, such as in real estate), you ultimately hope to recover your capital, with an appreciation on top of that.
The key is that you are primarily looking to invest your money for the long term , hoping for a positive return on investment.
This does not mean that the investments are without risk, but that we expect a much lower risk than in speculation (and therefore a lower potential return as well).
Speculating means putting money into financial media (stocks, cryptos, etc.) with a high probability of failure, to obtain short-term gains . Speculators seek out abnormally high returns – they “bet” on companies or sectors hoping to achieve significantly better than average results.
They buy titles, to keep them only for a short period before reselling them, hoping to be able to resell them at a profit.
It’s all about risk. Buying individual stocks (e.g. deciding to start investing by buying Française des Jeux shares) is risky behavior, since you are putting your money in a single company in the hope that it will increase in value .
And the risk is all the greater if you do not know the sector and/or the functioning of the stock markets perfectly.
Professional speculators (traders) seek to make an informed decision about a company’s financial condition and direction . They don’t invest in a stock just because they heard it was going up in value on the M6 newscast: it’s a professional analysis.
Can we beat the market?
Speculators have a specific goal in mind: what is called “beating the market”.
That is to say, they hope to obtain a performance better than that of the financial market as a whole.
And many people decide to take the risk of investing in certain stocks themselves in order to beat the market.
The problem ? Those who succeed are few. Really few.
But the second problem is that the successful few are all over the media . And let’s talk a lot less about those for whom this strategy has never worked. And that’s a large majority of people.
Knowing that ETFs (which we will see a little below) now allow you to invest in an entire market, it is generally a strategy much more suitable for beginners.
And which has allowed many people to achieve financial independence .
Yet you’ve probably never seen a headline: “Couple successfully grow their money by investing regularly in a diversified portfolio for decades.”
Whereas this scenario happens far more often than the super-investors who make their fortune by beating the market.
In fact, even actively managed mutual funds, which are investment funds in which the fund managers will actively buy and sell stocks in the hope of achieving maximum performance, underperform the market in 82 % of cases.
And these are funds managed by professionals and experts from the financial world .
In other words, speculating yourself without understanding the associated risks can therefore be extremely dangerous for your portfolio.
What to invest in?
Invest in the stock market
The stock market is simply a market where sellers and buyers come together to exchange financial instruments such as shares.
Simply explained, companies go public to easily raise funds and finance their development.
And when you buy a stock, you become a part owner of the company.
Then you can make money either through capital gains or dividends. We will not go into their operation in detail 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 through which you invest is different from the establishment in which you invest . For example, several establishments offer PEA, life insurance or title accounts.
In this section, we show you different examples of investments that will help you understand more clearly what you are investing your money in.
The different asset classes
To put 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 entitles you to a share of the profits of the company. Which means that the success of your investment is dependent on the success of the company.
Stock prices fluctuate throughout the day, but investors mostly expect that over time the shares of the company in question will increase in value .
In return for your investment, the company may also return a portion of its annual profits to you. How ? Through what is called a dividend per share.
Bonds are different from stocks, but they too are related to investing in the stock market. They are often integrated into a stock market investment strategy as a way of limiting risk, depending on your investor profile.
When you buy a bond, you lend money to a company or government, which then repays the loan to you at a fixed rate of return .
It is a safer investment than stocks, but still carries risks. This is why they are a key ingredient in a diversified investment portfolio, in particular to help balance risk over time.
For example, if stock markets crash, bonds can sometimes help cushion the blow.
Euro funds, like those found in life insurance, are generally mainly composed of government and corporate bonds.
And unlike shares (or unit-linked multi-support life insurance), the performance of euro funds is guaranteed.
The different types of accounts for investing in the stock market
We can never repeat it enough: to grow your wealth, it is practically essential to go beyond “classic” savings books to move towards investment solutions.
But the advantage of savings accounts, in addition to 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 go.
In this part, I present a selection of the most popular types of accounts.
Life insurance has many advantages.
Already, it is a particularly accessible investment . You can choose the type of payment that suits you: scheduled, one-off, or even no payment (if you already have a sum invested that you want to let grow).
Versatile, investment in life insurance can be adapted to all your needs and all types of project (purchase of real estate, studies, preparation of an estate, etc.).
Finally, one of its main advantages lies in taxation . Indeed, with the exception of social security contributions on euro funds, there is no taxation as long as you do not make any withdrawals. The tax on interest is applied in the case of a partial redemption but in a degressive manner.
The ordinary securities account
To buy shares on the stock exchange, you can go through an investment vehicle called a securities account . It is this 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 or international limit. You can therefore in theory buy stocks and funds from all over the world (depending on the establishment in which you open your CTO).
Withdrawals can be made anytime. But unlike other investment devices, the securities account does not present any particular tax advantage .