Inflation destroys risk-free investments
The recovery that, in the world, following the health crisis is resulting in a surge in energy and raw materials, the saturation of maritime transport and supply difficulties for certain manufacturers. The war in Ukraine is adding to this pressure on prices.
Enough to push inflation to levels unknown for a long time: nearly 3% over the year 2021 in France, nearly 5% in the euro zone. It is impossible to know if this situation is permanent or not.
– This price increase is even more penalizing for savers who have invested in life insurance funds in eurosthese capital-guaranteed supports on which the insurer pays interest each year.
– Their savings are losing purchasing power faster and faster because the return on this investment is significantly lower than the surge in the cost of living.
– In 2020, on average, the return was only 1.10%, before social security contributions and taxation, according to the Good value for Money site, which specializes in insurance. “In 2021, it should even fall below 1%”, predicts Cyrille Chartier-Kastler, founder of this site. Or two points less than inflation.
Our advice: If you want a capital guarantee or invest money for a short period, life insurance in euros remains the best investment. “But it is no longer advisable to use it to grow medium or long-term savings”, insists Yves Gambart de Lignières, independent wealth management advisor.
SCPIs, an investment that is holding up despite the boom in telework
• Real estate investment companies (SCPI) have been very successful for ten years because they provide regular income to savers. Those invested in offices and shops still bring in more than 4% per year, before taxes and social security contributions. These companies manage real estate assets, the rents of which they pay to subscribers.
• But today, with the rise of teleworking, companies are reducing their office space, particularly in Île-de-France. Unlet premises are more numerous, rents are leveling off and it is necessary to give away several “free” months to attract tenants.
At the same time, small businesses and shopping malls were also suffering from the pandemic, which encouraged online commerce. The rental income garnered by certain SCPIs has therefore fallen.
• Nevertheless, most of them have resisted well, in particular by drawing on their financial reserves to maintain the income paid to subscribers: it represented 2.1% of the value of the shares in the first half of 2021 (i.e. 4.2% on an annual basis), before income tax and social security contributions. Almost as much as before the health crisis.
• It is undoubtedly for this reason that savers started to buy office SCPI shares again in 2021, despite the crisis, but at a slower pace than before. They are also moving towards specialized SCPIs, on real estate linked to health or logistics (warehouses, etc.).
Our advice: Privilege the subscription of SCPIs in a life insurance contract: you will thus benefit from the more favorable taxation of this support. Between funds in euros, with very low returns, and stock market units, which are more risky, SCPIs offer an unparalleled happy medium.
– SCPI Denormandie, a tax advantage at stake. These SCPIs collect savings to buy a large number of homes in order to diversify their portfolio. Your payment entitles you to the tax reduction. If you prefer not to worry about anything, it is possible to buy SCPI Denormandie shares.
And the PEA?
The equity savings plan (PEA) is used less than life insurance to invest in stock market funds. Pattern? It does not offer an exemption from inheritance tax, and only accepts European equities, whereas in life insurance, it is possible to subscribe to more diversified funds (bonds, American equities, Asian equities, etc. ).
But the fees on the PEA are much lower than on a life insurance policy. And income tax exemption on gains is full after five years (excluding social security contributions), while it is limited on life insurance.
Old PEL, guaranteed rate life insurance contract… interesting old investments
Of very rare life insurance contracts in euros providing for a guaranteed minimum rate until the end of the contract still offer returns higher than inflation, as do some very old housing savings plans, at more than 3% per year.
On the other hand, the PEL opened for only a few years which report 2% or 2.5% before social security contributions no longer outweigh the evolution of the cost of living.
Old real estate, a safe haven in the face of rising prices
• House prices are soaring.
– The French craze for stone has not been denied during the pandemic. But, since the confinement of March 2020, the desire to go green and the rise of teleworking have encouraged them to buy mainly 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 careless and in a hurry, has pushed up the prices of these properties. According to notaries, the price of old housing in the provinces had jumped by 8.8% in the third quarter of 2021 compared to the same period a year earlier, and those of houses even soared by 9.4%.
• This dynamism may encourage investors to turn to old real estate.
– Today, rental investment is all the more attractive as it remains possible to borrow at very low cost. According to the credit broker Meilleurtaux, over fifteen years, with a good record, you can still obtain credit, excluding insurance, at less than 1%.
• Rental investment in new buildings being less attractive now, some savers looking for tax assistance are turning to the Denormandie scheme (named after the former Minister of Housing), which is gaining notoriety. The number of cities, small or medium, eligible for this tax benefit is increasing rapidly.
– This device makes it possible to buy a dwelling (house or apartment) to renovate it and benefit from a tax reduction. It can represent up to 21% of the price of the property, depending on the number of years of rental (twelve years maximum).
– The work must represent at least 25% of the operation and improve the energy performance of housing.
– To take advantage of the tax benefit, you must also rent the property to people whose resources do not exceed certain ceilings, at rents that are also capped. But in practice, in most of the cities concerned, these ceilings are higher than market rents and the income of a large majority of households.
– “The hopes of capital gains are probably less important than in the big cities, emphasizes Jack Dupe, director of the Maine-et-Loire Departmental Housing Information Agency. But the reasonable purchase price often results in attractive rental yields.”
Our advice: To invest well, choose a city whose real estate market you know and rental demand, and where you can find reliable contractors for the work. And don’t hesitate to go there to avoid any bad surprises…
Unregulated rents. Another advantage of investing in a medium-sized city: it is rarely envisaged there to control rents, whereas following Paris, a growing number of large cities are adopting or considering controlling rents. This can slow down the rise in rents, even if inflation accelerates, and which penalizes landlords.
Diversify your assets on the stock market
• After a soft spot in the spring of 2020, stock markets soared during the pandemic. In 2021, the CAC 40, the flagship index of the Paris Stock Exchange, even broke its historic record.
– Why? Because the European and American central banks are keeping interest rates very low to support the economy, which is eroding the performance of many competing financial investments.
– Investors have no choice but to go public buy company shares if they want a profitable financial investment.
• Savers are therefore also investing more and more in the stock market through multi-support life insurance contracts. where they are offered so-called “patrimonial” funds, very diversified or “prudent”, which limit the risks, but also more offensive stock market funds (which progress more when the stock market rises, but can also lose more if it falls).
– Today, 38% of sums invested in life insurance are directed towards units of account, that is to say mainly these stock exchange funds, and, more marginally, SCPIs.
– “In addition, savers have less and less choice”, notes Cyrille Chartier-Kastler. “Most insurers no longer accept new payments only on the fund in euros of life insurance contracts: they require that at least part of the new savings go to units of account.”
• This risk-taking has so far been rewarded. Funds invested in European equities, for example, have gained 51% over the past five years (performance to the end of October 2021) according to statistics from the financial firm Six Group. Even better, a saver who had invested in a US equity fund would have almost doubled his bet in the same period.
• But units of account are almost always devoid of capital guarantee. IIt is therefore possible to incur losses if the stock market falters. To limit the risks, the insurers propose to distribute the savings over several different funds. Some even offer turnkey management, where a specialist distributes your capital between different funds for you.
– Another way of investing while limiting the risks is to choose a “formula” fund, endowed with a total or partial capital guarantee at a given maturity, for example five years later. It is advisable to carefully read the information document approved by the AMF (Financial Markets Authority) to measure the gain to be expected and the risks taken.
– “Also be careful with bond funds or those with a lot of government bonds”, suggests Yves Gambart de Lignières. If the persistence of high inflation pushed interest rates up, these bonds, which are already unprofitable today, would suffer capital losses.
Our advice: As Yves Gambart de Lignières suggests, “Before investing, ask yourself what level of loss you could temporarily accept if the stock market plunged. This allows you to better understand the risk you are willing to take.
Life insurance, how to change your contract?
If you still hold a life insurance contract only in euros, without other investment vehicles, it is possible – without losing the old tax advantages – to transfer your savings to a more modern contract, with the same insurer. Check, however, that you will not have to pay fees, that the units of account offered will be attractive and that the new fund in euros will remain well remunerated.
Investing in new construction is worth it
New housing prices are breaking records, due to their scarcity and rising construction costs driven by soaring raw materials. What discourage to buy new or build to rent then; especially since the government has reduced the appeal of the Pinel system in recent years, which offers a tax reduction for this type of investment.
This tax advantage is no longer granted for houses and is limited to properties located in the tightest rental markets, therefore the most expensive to buy. It must also be redesigned in 2023.