And if it was precisely the time to invest in the stock market? photo credit: TMLsPhotoG / Shutterstock / TMLsPhotoG
The French are reluctant to invest in the stock market. They favor liquidity and security for their savings. However, in the medium or long term, the financial markets outperform all other asset classes. In addition, the current context offers real investment opportunities.
- Boost your savings by diversifying your investments
- Invest in the stock market: open a PEA to limit your costs
- Don’t put all your eggs in one basket
Boost your savings by diversifying your investments
The situation of permanently low, even negative, interest rates affects the profitability of the money and bond markets. As a result, the two preferred investments of the French, the Livret A and the funds in euros of life insurance contracts, no longer make it possible to protect savers against inflation. The Livret A remuneration has only been 0.5% since February 2020, and that of life insurance in euros fell below 1.5% in 2019 before tax and social security contributions.
To stimulate your savings in the medium or long term, you can invest part of your assets in stock market assets, to take advantage of the dynamism of the financial markets. Over the long term, equities have always outperformed all other investments. The Stock Exchange certainly recorded significant setbacks in early 2020 due to the health crisis linked to the Covid-19 epidemic. But the plunge was short-lived and the financial markets started to rise again in April 2020.
Invest in the stock market: open a PEA to limit your costs
For invest in the stock market, you have two solutions: open an ordinary securities account or open a Equity Savings Plan (PEA). The second solution is a little more restrictive because the payments on the PEA are capped at € 150,000 (€ 225,000 in the event of the opening of a conventional PEA and an SME-ETI PEA). And you can only stay there in European equities and Sicav or FCP shares invested at least 75% in European equities.
However, opening a PEA is also more tax-efficient because the dividends and the capital gains generated within it are exempt from income tax in the absence of a withdrawal from the plan during the first five years. Before five years, the gain realized is subject to the single flat-rate deduction of 30%, social deductions included.
In addition, from July 1, 2020, the costs attached to the PEA will be capped: € 10 for opening costs, 0.4% for account maintenance costs, 0.5% for transaction costs, and € 150 maximum for the costs of transferring the plan to another establishment.
Don’t put all your eggs in one basket
It is necessary to distribute your investments on the stock market among several of the most promising business sectors. Diversification by geographic area is also recommended. Start by choosing the leading companies in their sector to limit your risk of loss and obtain regular income. Then, mix your assets with companies with high growth potential. Also remember to set yourself goals from the start because stocks are volatile. Thus, you will know how to take your profits at the right time, and you will limit your losses if the stock market goes down.
Remember that the stock market is a long-term investment. You should only invest money in it that you are sure you will not need in the short term. In the words of the famous financier Warren Buffett: “If you are not ready to keep a share for 10 years, don’t even think about holding it for 10 minutes”.