Retirement is prepared young. Good news: with an investment horizon of between fifteen and twenty-five years, stocks are financial products suitable for boosting the performance of your assets. Judge for yourself. Between September 30, 2009 and September 30, 2024, the CAC 40, provided that the dividends paid each year by companies were reinvested in the purchase of shares, showed a jump of 232%. Which represents a rather generous average annual return of 8.3%. Over the same period, the livret A increased by 22.3%, an annualized gain of 1.35%. A hardly exciting result which will not even allow its holder to compensate for the monetary erosion linked to inflation.
Of course, these are just statistics. And, unfortunately, just pressing a button isn’t enough to get the desired result. To succeed in the stock market, you must be well mentally prepared, well advised and pursue a coherent investment strategy. Because, unlike the Livret A, where the holder cannot tolerate any fluctuations, the financial markets are moving organizations with, from time to time, significant drops and tangible jumps. You have to be aware of it and stay the course.
You can select your own titles. A word of advice: to pool the risk, you must have around twenty different securities housed in your stock savings plan (PEA) or your securities account. “We must not lock ourselves into a management style by only choosing, for example, companies that pay generous dividends, like Total or Vinci,” analyzes Franck Languillat, general manager of Financière de la Cité. It’s better to build a diversified portfolio that also includes growth (luxury, tech), defensive (health, telecommunications) and cyclical (construction, chemicals, banks) stocks.” This combination will give you a wallet capable of sailing in all weathers.
As you are investing for the long term, you don’t need to have your nose glued to your computer screen to follow price developments. On the other hand, when you select a company, you must do so out of conviction. By being responsible for your choices, you reduce your probability of panicking if the stock market tanks and selling your shares at the worst possible time. It is therefore important to consult, for each of the firms of which you are a shareholder, the publications of the half-yearly and annual results, the announcements of important operations, as well as the annual report which is a mine of information on the commercial strategy of the company. company, its governance and the state of its finances. This completely autonomous management requires a minimum of personal involvement but it is rewarding, especially if you ultimately show significant added value.
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However, if you lack the time (or desire), you can hire a professional manager. In this case, you benefit from a whole range of equity funds, which can be general or specialized in a geographical area, on a company profile, etc. They are also very practical for diversifying your investments internationally. As for the annual costs, commissions and fees associated with this management, they amount on average to between 2 and 4% of the amounts invested, which is not neutral in terms of long-term performance. But that’s the price you pay to preserve your peace of mind.
For those who hesitate between the two formulas “manage yourself” or “delegate”, there is a hybrid solution which consists of acquiring exchange-traded funds (ETF) or trackers. These index funds faithfully replicate the composition of a stock market index and thereby automatically track its stock market performance.
As equity investments are volatile, it seems wise to gradually introduce a dose of less risky financial products. “At 35, it is completely consistent to hold a financial portfolio made up of 100% stocks,” underlines Thibault Delahaye, president of Delahaye Capital. “The older you get, the more you will reduce your exposure to stocks, favoring less risky assets like bonds As you approach retirement, it will become interesting to hold 30% stocks and 70% bonds. At least if you count on this capital to improve your lifestyle.
Avoid the pitfalls
Bonds work differently than stocks. When they issue these debt securities, companies or States undertake to repay this loan on a date decided in advance. They regularly pay interest at a contractually defined rate. By holding a bond, you know in advance the amount of the “rent” that will be paid to you and the date on which the company will reimburse the capital you have invested. You benefit from real visibility on future income. “Moreover, when the stock markets find themselves in the red, bonds often serve as a safe haven for investors,” explains Thibault Delahaye. “So much so that their performance is most of the time uncorrelated with that of stocks. Which makes it possible to reduce the risk of a sharp decline in its portfolio.”
The other side of the coin is that you are exposed to the risk of bankruptcy of the issuer, who, in this case, will not be able to honor its commitments. In addition, as it is a professional market, it is difficult for an individual to access titles directly. Not to mention the high stake required. The best solution is to buy listed bond funds. There are all kinds of them, with more or less high return prospects. Some specialize in sovereign bonds, which currently offer a gross annual return of around 3% over ten years excluding management fees. Others consist of bonds from large groups with a low risk of bankruptcy, paying 3.5% on average. Slightly more speculative funds, called high yield, select securities of companies with a slightly higher probability of default in return for higher interest rates (5.5%). Finally, financial bond funds issued by banks and insurance companies deliver gross annual returns of 6% and convertible bond vehicles, 6.5%.
But, be careful, before doing your shopping, look carefully at the amount of management fees, which, depending on the nature of the funds and management companies, vary between 0.3 and 1.8% of the amount invested. “A balanced bond portfolio with a controlled level of risk would be composed of half funds invested in large group bonds, 20% in high-yield bonds, 20% in convertible bonds and 10% in financial bonds,” advises Franck Languillat, of Financière de la Cité. Diversification remains the key word that should guide your investment strategy in order to build up a small jackpot that is essential for getting your retirement off to a good start.
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