Inflation undermines risk-free investments
The recovery in the world that followed the health crisis has resulted in a flare-up of energy and raw materials, saturation of shipping and supply difficulties for some manufacturers. The wars in Ukraine are exacerbating this price pressure.
What to push inflation to levels unknown for a long time: almost 3% over the year 2021 in France, almost 5% in the euro area. Impossible to know whether this situation is sustainable or not.
– This rise in prices is even more detrimental to savers who have invested in euro life insurance fundsthese secured capital funds on which the insurer pays interest each year.
– Their savings are losing power more and more quickly because the return on this investment is significantly lower than the soaring cost of living.
– In 2020, on average, the yield was only 1.10%, before social levies and taxation, depending on the website Good value for money, specialized in insurance. “By 2021, it should even fall below 1%,” said Cyrille Chartier-Kastler, the site’s founder. That’s two points less than inflation.
Our council: If you want a capital guarantee or a short-term silver investment, the euro insurance remains the best investment. “But it is no longer advisable to use it to make savings in the medium or long term.” insists Yves Gambart de Lignières, an independent wealth management consultant.
The SCPI, an investment that resists despite the rise of telecommuting
• Civil real estate investment companies (SCPIs) have been very successful for the last ten years as they provide regular income to savers. The cells invest in offices and trade, always earning more than 4% per year, before taxation and social levies. These companies manage their real estate assets, the rents of which they pay to the subscribers.
• But today, with the rise of telecommuting, companies are shrinking their office space, especially in Île-de-France. Leased premises are more plentiful, rents are capped, and several “free” months must be given away to attract tenants.
At the same time, small businesses and malls are also suffering from the pandemic, which has favored online commerce. Rental revenues from certain SCPIs have therefore fallen.
• Nevertheless, most of them have withstood, in particular, the use of financial reserves to maintain the income paid to subscribers: it accounted for 2.1% of the value of units in the first half of 2021 (or 4.2% year-on-year), before income tax and social security contributions. Almost as much as before the health crisis.
• It is probably for this reason that savers have resumed buying SCPI shares of offices in 2021, despite the crisis, but at a slower pace than before. It is also oriented towards SCPI specializations, on real estate it is in health or logistics (entrepôts…).
Our council: Privilege when subscribing to SCPI in a life insurance contract: you thus benefit from the more favorable taxation of this support. Between the very low-yielding euro fund and the riskier stock exchange units of account, SCPIs offer a fair medium with no equivalent.
– SCPI Denormandie, a key tax advantage. These SCPIs raise savings to buy a large number of homes in order to diversify their portfolio. Your payment entitles you to a tax deduction. If you prefer not to worry about anything, it is possible to buy shares of SCPI Denormandie.
And the PEA?
Le plan d’épargne en actions (PEA) is less used to invest in stock funds. Reason? It does not offer an exemption from inheritance tax, and only accepts European shares, while in life insurance it is possible to take out more diversified funds (obligații, acțiuni americane, asiatice etc.). .
But the costs on the PEA are much lower than on a life insurance policy. And the income tax exemption is total after five years (excluding social security contributions), while it is limited on life insurance.
Former ELPs, guaranteed life insurance policy … interesting old investments
Of very rare life insurance contracts in euros providing for a guaranteed minimum rate until the end of the contract still offers higher returns than inflation, as well as some very old housing savings plans, at more than 3% per year.
On the other hand, PELs that have only been open for a few years, which return 2% or 2.5% before social security contributions, outweigh the cost of living.
Old real estate, safe haven value in the face of rising prices
• House prices soar.
– The French passion for bare stone was not denied during the pandemic. Moreover, since the confinement of March 2020, the desire to go green and the rise of telecommuting have prompted them to buy mostly houses, on the outskirts of the capital or large cities, and second homes, in the countryside or on the coast.
– The influx of buyers, sometimes unattended and in a hurry, has pushed up the prices of these goods. According to notaries, the price of old homes in the province had jumped by 8.8% in the third quarter of 2021 compared to the same period a year earlier, and those of homes have even soared by 9.4%.
• This dynamism can lead investors to turn to old real estate.
– Today, rental investment is all the more attractive as it is still possible to borrow at a very low cost. According to the Meilleurtaux credit broker, over fifteen years, with a good record, you can still get a loan, excluding insurance, at less than 1%.
• Housing investment in the new is less interesting, some savers seeking tax relief are turning to the Denormandie scheme (named after the former Minister of Housing), which is gaining notoriety. The number of cities, small and medium, eligible for this tax benefit is growing rapidly.
– This device allows you to buy a home (house or apartment) to renovate it and benefit from a tax reduction. It can represent up to 21% of the good price, depending on the number of years of lease (maximum twelve years).
– The works must represent less than 25% of the operation and improve the energy performance of the home.
– In order to take advantage of the tax advantage, you must also rent the property to people whose bare resources do not exceed certain ceilings, to rents also capped. But in practice, in most of the cities concerned, these ceilings are higher than the market rents and incomes of a large majority of households.
– „Spoilers of capital gains are probably most important that in big cities, points out Jack Dupe, director of the Maine-et-Loire Departmental Housing Information Agency. More reasonable purchase prices often lead to attractive results. ”
Our council: To invest well, You need a city whose real estate market you have chosen and the rental demand, and where you will be able to find reliable contractors for the work. And you don’t have to run on the spot to avoid any unpleasant surprises …
Unframed rents. Another advantage of investing in an average city: it is seldom considered to frame rents, while as a result of Paris, an increasing number of large metropolises are adopting or considering framing rents. This can slow down the rise in rents, even if inflation accelerates, and that penalizes homeowners.
Diversify its stock market assets
• After an air hole in the spring of 2020, stock markets are soaring during the pandemic. In 2021, the CAC 40, the flagship index of the Paris Stock Exchange, even broke its historical record.
– Why? The park for European and US central banks keeps interest rates very low to support the economy, which dampens the performance of many competing lenders.
– Investors have no choice but to go public buy corporate shares if they want a profitable financial investment.
• As a result, savers are also investing more and more in the stock market through multi-media life insurance contracts. where they are offered so-called “equity”, highly diversified or “prudent” funds that limit risk, but also more offensive stock funds (which progress more when the stock market goes up, but can also lose more if it goes down).
– Today, 38% of life insurance funds go to units of account, that is, mainly these scholarships, and, more marginally, SCPIs.
– “Savers have less and less choice,” says Cyrille Chartier-Kastler. “Most insurers no longer accept new payments only on the euro fund of life insurance contracts: they require that at least part of the new savings go to the units of account.”
• This risk-taking has so far been rewarded. European equity funds, for example, have gained 51% in the last five years (performance stopped at the end of October 2021), according to statistics from financial group Six Group. Better yet, an investor who would have invested in an American equity fund would have almost doubled its stake in the same period.
• But units of account are almost always without a capital guarantee. IIt is therefore possible to incur losses on the stock market. For risk limiters, insurers propose to distribute savings on several different funds. Some even offer key management mainly, where a specialist distributes for your capital between different funds.
– Another way to invest in limiting risk is to choose a “formula” fund with a full or partial capital guarantee at a given maturity, for example five years later. It is advisable to read the information document endorsed by the AMF (Financial Markets Authority) to measure the expected gain and the risks taken.
– “Also be careful with bond funds or those with large government bonds”, suggests Yves Gambart de Lignières. If the persistence of high inflation pushed up interest rates, these bonds, which are already unprofitable today, would suffer capital losses.
Our council: As Yves Gambart de Lignières suggests, „Before investing, ask yourself what level of loss you could momentarily accept if the stock market plunged. This allows you to better understand the risk, that you are ready to take ”.
Life insurance, how to change your contract?
If you only need a life insurance policy in euros, without other investment support, it is possible – without losing the old tax benefits – to transfer your savings to a more modern contract with the same insurer. Check, however, that you will not have to pay any fees, that the proposed units of account will be attractive and that the new euro fund will remain well paid.
Investing in the new is worth it
New home prices are breaking records, due to their scarcity and rising construction costs caused by soaring raw materials. What to discourage from buying new or having to build and then rent; especially since the government has reduced the appeal of the Pinel scheme in recent years, which offers a tax cut for this type of investment.
This tax advantage is no longer granted for houses and is limited to property in the most tense rental markets, therefore the most expensive to purchase. It must be redesigned in 2023.