Transcription
You are about to receive €10,000. You have this sum sitting in your bank account. Consequently, you ask yourself the question: what should I do with it? How should I invest it? In this video, I will give you my roadmap for investing this sum optimally. Let's go!
Hello, I am Monir, the founder of Finar, a YouTube channel dedicated to helping you invest your money better. I have been investing for 10 years and have invested in many things. Therefore, the question of the strategy to follow is constantly asked. The first thing to know and the first thing to define for yourself is your objective. Everyone has their own objective. It could be to become financially independent, to finance a major purchase like an apartment or a house, to prepare for your retirement, or even simply to finance your children's studies. In short, your objective belongs to you. You can obviously have several, but it is personal.
The second thing is the investment horizon, which will directly depend on your objective. Do you need the money in the short term, medium term, or long term? If, typically, your objective is to be financially independent, you will have a long investment horizon. A long investment horizon means the possibility of taking more risk. If you need the money in the short term, for example, to finance your real estate purchase, you will not be able to take the same level of risk because, naturally, you will not want to see your capital decrease.
And finally, the third point, which is really key, is the level of risk you are willing to take. Generally, it is expressed on a scale from 1 to 7, with 1 being for people who really do not want to take any risk, and 7 for people who want to take the maximum risk. In my experience, we generally overestimate our tolerance or our capacity to take risks and to absorb losses. Because yes, that's the thing: when we take a lot of risk, we also risk increasing our losses. So, typically, if you face a market that drops sharply, you risk panicking and selling. Therefore, my recommendation is to be more conservative and to take a level of risk with which you are comfortable.
Another thing to keep in mind is that every euro you leave in your bank account will be eroded by inflation. What does that mean? It's very simple. In a year, you will have exactly the same sum in your account. However, what you can buy with that sum will have decreased. So, inflation attacks your purchasing power. Currently, we are in a period of high inflation, around 4-5%. This means, concretely, that prices increase by 4% or 5% each year. So, if you have €1,000 in year 1 and €1,000 in year 2, in year 2 you will have 5% less purchasing power. Therefore, the money sitting in your bank account is concretely being attacked by inflation.
This does not mean that you should jump on the first investment product offered to you and invest blindly. You need to take your time, think carefully, and not forget that when your banker calls you, it is usually because they have something to sell you, and they are selling you something because they will earn a commission on it. And that is a very important point.
This leads perfectly to my next point, which is support. I am always told, "Yes, but I can't invest because I don't know anything about it, so I'll see an advisor." Be careful, most advisors are paid by commission, as we just discussed. What does that mean? It means you won't pay anything for their recommendations, but when they sell you something, they will take a commission on the products sold. So, naturally, you understand that there is a slight misalignment of interests.
The reality is that if you want to invest €10,000, you don't need to be accompanied. Today, all the knowledge is available for free on the internet. You have incredible blogs, incredible YouTube channels, forums like the Finar forum. You truly have a goldmine of information. You have people like you who share their experiences and give you recommendations, and that is very valuable. And above all, it saves you from taking bad advice. So, if you want to invest, the reality is that it is better to educate yourself. Take a few hours to acquire the basic knowledge, and then take action.
Before moving on to strategies, let's talk about the golden rule of investing: diversification. What does that mean? It means not putting all your eggs in the same basket. And there is a fairly easy and visual representation that I use a lot: the investment pyramid. The pyramid is very simple. It is read from bottom to top and allows you to truly visualize that we proceed gradually.
The first level of your pyramid is your safety net. So, concretely, you will put between 3 and 6 months of current expenses in a savings account that will be 100% secure and available at any time. The ideal savings account for this is the Livret A, because the reality is that with the ceiling of €22,950, you still have a lot of room before having 6 months of expenses on it, so it does the job very well. Even better than the Livret A is the LEP, and the LEP is magical because, in fact, it is the only savings account that truly allows you to cancel out inflation. It is currently at 6%, and its rate is indexed to current inflation in France. The LEP is only accessible under certain conditions, so we will put a link for you to check if you are eligible. If you are, you can call your bank, go to your online bank, and open it. This will allow you to have the highest interest rate on the market with no risk.
Once you have secured your safety net, you can start putting your money to work and truly invest. Because remember, the Livret A pays 3%, which is less than inflation, as we just saw. Purchasing power is eroded by inflation. So, when you put your money to work, you will start generating returns and seeking performance that goes beyond inflation, which will enrich you. And for that, there are several asset classes: stocks, which are truly the essential pillar that you absolutely must use; real estate, which is another important pillar because it will allow you to unlock credit, which is a real advantage in France with our fixed-rate credit; then beyond that, you have crypto, which is a relatively young but very interesting asset class. Be careful, there are many pitfalls in crypto, so you will need to know how to navigate and make the right decisions. And then, once you have mastered these basics, you can go further by investing in what I call alternative investments. So, what are those? It could be Pokémon cards, it could be gold, it could also be collectibles. But you will quickly understand that, in fact, you don't need to go that far up the pyramid. A pyramid with a safety net, stocks, real estate, and crypto is already a very well-structured pyramid.
Let's move on to the strategies. I have prepared three possible strategies for you. We will analyze them one by one and then compare the results to see which one is the most interesting. None of these strategies involve taking out a bank loan to buy real estate, because we only have €10,000 to invest. If we have to make a down payment, we risk having to put almost all of this sum into the loan as a down payment, so we eliminate that.
The first strategy is very simple: 100% in stocks. What does that mean? It means we will invest in the real economy and become shareholders of all the companies that actually make our world run. And there are many ways to do this. But what you need to remember is that you can either buy individual companies, like for example Air Liquide, Total, Tesla, Apple, or you can decide to buy the market as a whole because you don't know exactly which company will perform better. So, you will ask yourself: should I buy individual stocks or buy the market?
There are many studies that show that it is almost impossible to outperform the market, even professional fund managers can't do it. And the most well-known study is the S&P SPIVA study. I'll put the link in the description, and it has shown for years that 90%, even 95%, of professional fund managers, with analysts and traders who spend their entire day analyzing companies and meeting with CEOs, cannot perform better than the market. So, I think what is called stock picking, choosing stocks, is a very difficult and far too risky choice. Therefore, I prefer to lean towards a passive approach, which consists of buying the market.
And for that, there is a magical solution called ETFs. What are ETFs? They are simply instruments listed on the stock exchange that can be bought and sold like stocks. They can be bought during market opening hours, and with an ETF, you can buy a whole segment of the market at once. For example, the CAC 40, the S&P 500, which is the American stock market index, or you can also buy the MSCI World, which you may have already heard of. In short, you can buy all the major indices at very low costs. And we talked about costs a little earlier, and that's why ETFs are interesting. And that's also why your bank advisor has never mentioned them to you, because there are no commissions on ETFs. So, it's a good way to invest passively, to buy a very diversified basket of stocks. If you buy, for example, the MSCI World, there are 1,600 companies in it. You have LVMH, you have Tesla, you have Apple, you also have Japanese companies. So, you will really touch the whole world: the United States, Europe, Japan, with a single line. And it might seem a bit worrying to have only one line in your portfolio, but in fact, this one line includes 1,600 companies, so it's very, very diversified.
You might say that sounds interesting, but what is the long-term performance of major indices like the MSCI World or the S&P 500? Well, it's between 8% and 10% per year over very long periods. The S&P 500, which has existed for over 100 years, has produced an average annualized return of 10% over 100 years. So, it's really important to keep in mind that there are good years when the market has increased a lot, but there are also years of crisis when the market will lose a lot. So, that's also what the stock market is: on average, it goes up because the economy grows, but especially during years of crisis, the market can fall sharply. A financial crisis, for example, in 2008, was a -40% in one year. So, naturally, you need to have strong nerves to be able to absorb an unrealized loss, but you need to see your portfolio drop by 40% without panicking and without pressing the sell button.
So, what are my favorite ETFs? First of all, I only do ETFs that are very simple and that replicate major indices: the MSCI World, the MSCI World All Countries, which is actually an enhanced version with emerging markets included. So, that can also be interesting. We know that India or Brazil are developing enormously, so in the long term, they will represent a significant portion of global wealth, so it can be interesting to invest. Another index I like a lot is the S&P 500, which focuses only on the American economy. The reality is that the American economy is truly the global economic engine. So, if you have a stronger conviction about the United States, you can also invest only in this market. There is also its European counterpart, the Euro Stoxx 50 or the Euro Stoxx 600. The difference is simply that you have more stocks in the 600 than in the 50, but it's equivalent. You should know that Europe, in the long term, underperforms the United States, but it allows for a bit more diversification. So, you have a whole range that allows you to be well-positioned. My two favorites are really the MSCI World All Countries and the S&P 500. I advise you not to take both, because if you have the MSCI World All Countries, you already have a large part of the United States, so it would be redundant and serve no purpose.
And how do you invest in ETFs? What is the platform with which you will buy them? You have roughly three options: you have the securities account (compte titre), so these are brokers. There are many that allow you to buy stocks, bonds, and many other things, but also ETFs. You have the PEA (Plan d'Épargne en Actions), and you have life insurance (assurance vie). Since we have €10,000 to invest, the most interesting by far is the PEA. Why? Because a PEA with an online bank has no fees. The account is free. You will pay fees when you place orders, but you will pay them everywhere, even if they say there are no fees, there are hidden fees. So, you have no account fees, you have transaction fees, and above all, you have a significant tax advantage on the PEA, since there is no tax on capital gains if you keep the PEA for more than 5 years without withdrawing funds. So, that is the sine qua non condition to unlock the tax advantage. You should know that the PEA has an advantage, or rather two. The first is that you can only deposit €150,000 on it, and well, in our case, that's no problem. The second disadvantage is that you can only invest in stocks; you cannot put bonds or other things in it. So, again, in our case, it's not really a problem, because anyway, we want to do a 100% stock strategy.
Now that we have chosen the ETF and the account, let's consider whether to invest our €10,000 all at once or spread it out over 12, 18, or 24 months. Here, my recommendation is quite simple: invest gradually to avoid market risk. You should know that investing all at once is statistically more profitable, but it involves stress. Because what happens if we invest on the highest market day and the market drops 20% the next day? We will sleep very badly. So, again, I recommend spreading your investments over 12 months. On the other hand, you will sleep well, and you will also benefit from a potential market downturn.
The second strategy I will talk about is the 60/40: 60% stocks, 40% bonds. What are bonds? They are quite simple. They are actually debt securities that we issue to states like France or the United States. They are loans that we make to companies, and we also make them to municipalities and local authorities. Then, these municipalities, companies, or states will gradually repay our capital by paying us a coupon, and at maturity, they will repay the entire capital. Bonds have the advantage of being safer because they are a much less volatile asset. So, what generally happens is that bonds react inversely to stocks: when stocks fall, bonds rise, and vice versa. So, it can be interesting to combine the two, because bonds will help cushion the shock when stock markets fall sharply.
If we compare the performance of a 100% stock portfolio with that of a 60/40 over the last 40 years, the 100% stock portfolio will perform better, around 8% per year annualized. The 60/40 will be around 7.2-7.3%. However, it will achieve this performance with much lower volatility and therefore risk. What is volatility? It is the variation in prices, so the variation in performance. So, in fact, we are better compensated in the 60/40 for the risk taken, but we will generate less performance. So, in fact, the 60/40 is ultimately quite suitable for a more conservative profile, whereas the 100% stock is more suitable for a profile that is ready to take a lot of risk. And by the way, you can also create the 60/40 with ETFs. The stock portion is done with an MSCI World All Countries, for example, and the bond portion is also done with an ETF that will focus on bonds.
Third strategy: 50/40/10. 50% stocks, we've already talked about that, but we will introduce two new asset classes. The first is real estate. I told you at the beginning of the video that we will not do real estate by buying an apartment because we don't have enough down payment for a loan. But we have other options, and the option I'm thinking of is SCPIs (Sociétés Civiles de Placement Immobilier). What is an SCPI? It is simply a fund that collects money from savers like you and me, and then reinvests this money in professional real estate. So, it buys many different things: offices, healthcare facilities like nursing homes, it buys nurseries, it also buys logistics, so warehouses, it can buy hotels. There are many different SCPIs, over 200 in France, and each has a particular strategy.
The advantage of SCPIs is that you become a shareholder of this SCPI by buying shares, and you will receive rent without doing anything. You won't have to manage tenants, you won't have to manage vacancies, you won't have to find new tenants, or renovate properties. This is truly the job of the management company that manages the SCPI to which you have subscribed, and they will take care of it. And so, every quarter, or even every month, this SCPI will pay you rent, and generally, the returns are 4% to 5%, depending on the SCPIs. Some do more, some do a little less. So, SCPIs allow you to generate passive income. It's true passive income because we do nothing. But there are still disadvantages.
The first disadvantage is that most SCPIs will charge you entry fees, and these entry fees can be really significant, between 8%, 10%, or even 12% that will be taken upfront when you invest. That is to say, concretely, if you put in €1,000 and they take 10% in entry fees, in fact, only €900 of your money will be put to work. So, that naturally strongly impacts performance. The second disadvantage is that many SCPIs have invested in very concentrated sectors. They are really specialized in healthcare or offices. The problem with offices is that with remote work, many companies need smaller spaces. So, naturally, there is vacancy, so fewer rents are coming in, and the properties already in the portfolios of large office SCPIs are difficult to sell.
We talked about diversification earlier, and it's important. However, if you specialize in one sector, what you risk is buying buildings when they are very expensive. So, you will have poor performance because you will buy very expensively, but when the market turns around and prices fall, you will be stuck because you won't be able to sell them. So, that's a bit what's happening with offices, because remote work has led many, many large companies to reduce the space they need. There are also other sectors that have suffered. I'm thinking particularly of logistics, which is obviously developing very strongly, but the problem with logistics is that everyone wants warehouses, so naturally, it becomes expensive, and when it's expensive, you can't generate much return, so it's difficult to achieve interesting performance.
And finally, the last problem with SCPIs is liquidity, or the relative lack of liquidity. You can absolutely sell your shares, but you should know that there is no guarantee that you will find a buyer, unlike ETFs, where you press a button and generally there is always someone to buy your share, and it's almost instantaneous. With SCPIs, in fact, it's the management company that will handle selling your shares. So, no problem in a market where everyone wants to buy SCPIs and where everything is going well. But currently, we are rather in a crisis, and therefore, naturally, many people have tried to sell their shares. There are even management companies that have blocked redemptions, or even life insurance companies that have blocked redemptions, even though insurers are supposed to guarantee liquidity. So, that's a risk you need to keep in mind: your capital could potentially be blocked, and share prices could fall sharply. Indeed, the prices of several large banking SCPIs, particularly from Amundi, have fallen by 15% to 20% just a few months ago. And I think it's important to understand that this is a real risk.
Indeed, I recently met the CEO of the largest French SCPI manager, Corum. He shared his opinion on the market, what to do, and what to avoid right now to truly benefit from this market, which remains interesting. So, how to choose good SCPIs? My recommendation is very simple: favor SCPIs that have no entry fees. Look at the historical performance they have delivered. Are they able to maintain interesting performance over time? Do they have a high occupancy rate? It must be at least 90% occupancy rate. Is the portfolio well diversified, both in terms of sectors (they invest in warehouses, hotels, offices, retail) but also in terms of tenants (are there many different tenants in many different industries)? And finally, is it geographically diversified? Is it only in France, or is it spread across Europe or even North America? So, that's really the key. All documents are available on the SCPI websites, so look carefully at that before making your choice.
The last portion of our strategy, the famous 10%, is crypto. It is the asset class that has performed best over the last 10 years, and by a very wide margin. Naturally, it is new, it is very young. Young asset classes mean enormous scams, enormous pitfalls. And here, we will play it very safely and go for assets that are here to stay. There are two, generally, that I think of: Bitcoin, of course. This is truly the grandfather of crypto. This is why it was created. It has been around for years. Many asset managers invest in it. There are even ETFs that will soon be launched and marketed by the world's largest managers. So, it is truly the safest asset by far in an asset class that is still relatively volatile. The second is Ethereum. Ethereum is interesting because, unlike Bitcoin, which is more like digital gold, Ethereum is a bit like the computer of the blockchain, and it powers a large part of the applications, including what is called DeFi, decentralized finance. So, these are really the two most interesting cryptos.
How to invest in crypto? There are many platforms that are great for investing. I'll put a link to a comparison that will help you form an opinion. What you need to remember is that you can leave your cryptos on a platform, but you can also withdraw them to your wallet, particularly Ledger, which is one of the best French startups. And that is the only way to be 100% certain that your cryptos belong to you. So, it is also important to invest in hardware so that you can store your cryptos securely.
It's time for the summary. We will compare the performance of the three strategies. To recap, we have strategy one: 100% stocks. We have strategy two: the famous 60/40, 60% stocks, 40% bonds. And finally, we have the 50/40/10: 50% stocks, 40% real estate, and 10% crypto. For our analysis, we assumed an investment horizon of 20 years and took the following performance figures for the asset classes: stocks at 8%, bonds at 4%, real estate at 4.5%, crypto at 12%, and finally inflation, meaning the increase in prices or the loss in purchasing power, at 2% per year. Obviously, if you make capital gains, you will pay taxes. We are in France, after all, for capital gains. So, we took 17.2% for investments made via the PEA, remember, there is a tax advantage. And for all other asset classes, we used the flat tax, which is 30%.
And now, drumroll for the results! The most performing strategy is strategy one, 100% stocks, and by a wide margin, which is logical, and I'll explain why. Number two on the podium is the 50/40/10: 50% stocks, 40% SCPIs, and 10% crypto. And the last one is our 60/40. Obviously, take these results with a grain of salt. Past performance is not indicative of future performance. We have taken estimates, we have modeled increases, so it's not at all certain that it will happen like this. But it gives you a good indication.
But what is most important is that the final strategy depends on your risk profile, your objective, and your horizon. An investor who opts for strategy one is someone who has a very ambitious objective, a long investment horizon, and is willing to take risks because they have a high tolerance for accepting losses. This is really important because, naturally, you have to relate this to performance. So, yes, strategy one is the most performing, but naturally, it is also the riskiest. If the market turns around and you have a crisis, you can lose 30-40% in one year, and that can be hard to bear when you start investing. So, keep that in mind when you create your strategy.
As you will have understood, there is no universal strategy. Everyone has their own strategy, and everyone must be comfortable with the investments they make. So, I am very curious to know what your strategy is. Tell me in the comments, and let's continue the discussion. I wish you good investments and see you very soon. Goodbye! [Music]