What are the best investments to increase wealth long-term in France?

Question

TL;DR: Are PEE (company savings), PEA (stocks) and renting the best options in France long-term?

I am single, 26, living rent-free and wondering how I should proceed to ensure my financial stability in the future and having a decent wealth in the future: my goal is to be able not to work and live well, if I want to. I have read a lot on the subject, and here are my conclusions.

Please tell if I missed something important!

I live in France, and currently doing a PhD in Artificial Intelligence and Computer Vision, which is a well-paid (?) field. I have a student debt (~15k€), that should be cleared by the end of the year. Unfortunately, I do not see many options for medium/long-term investments, compared to the US (as the 401(k) or Roth IRA).

Still, the decent options right now seem to be:

• The Livret A, a savings account (0.75% / year, capped at 21k€)
• PEA: European stocks, with much less taxes if the money is retrieved after 8 years (capped at 150k€). Also includes ETF trackers and investment funds (SICAV, OPCVM, ...).
• Buying apartments / houses and renting them.
• On a smaller scale, the PEE (by making use of the abondement: as an example, my company gives 700€ if I put 2000€ in the PEE). The PEE has a very low risk investment (mostly bonds).

However, I have some doubts about other financial products:

• Life insurance: the non-euro funds are too risky (I'd rather buy stocks) and euro-based funds have low performance (2%, decreasing every year) and high fees (0.6%).
• Managed investment funds: too risky - they crashed last year. I'd rather buy stocks myself.
• Ironically, bonds and ETF trackers. The reason is that they seem to have increased (too much?) in popularity recently, while the performance is lower than in the past.

Overall, my short-term plan (3-4 years) is to:

• Invest every month a good chunk of my salary (e.g. 30%+) in stocks of dividend paying, well-known companies (Airbus, Peugeot, AXA, Société Générale...) using a PEA. Reinvest the money earned from dividends.
• Make the most of my PEE and the abondement offered by my company.
• Keep my emergency fund (5k€) and whatever is left in a Livret A.

My medium/long-term plan is to:

• Same as short-term, but with a lower % in stocks. Use a normal trading account if I go above the PEA cap;
• Invest some % of what I earn in ETF trackers.
• Be on the lookout for a good housing opportunity, that can be rented medium-term (it is easier to get good loans for your first home, but you need to wait some time before you can rent it).

Finally, note that I am willing to take (moderate) risks in the short term. I do not exclude the possibility of working abroad, and not interested in short-term stocks selling.

Are the financial products I listed the most appropriate ones in my case?

Thanks!

Answer 1

Disclaimer: this is my personal advice as a resident in France and investor. This is not professional investment advice.

Short Answer:

A good option in order to build long-term wealth in France is to invest in capitalizing Index ETFs through PEA and PEE, and eventually in euro funds through a life insurance.

Long Answer:

In term of minimizing how much tax you pay, the PEA and the PEE are possibly your best bets. Specifically, what happens is that after holding them for some time - 8 years for the PEA and 5 years for the PEE - you only pay social contributions (prélèvements sociaux) on your gains.

This is less than a securities account (compte titre) or a life insurance (assurance vie) where you would be paying some income tax on top of the same social contributions as in a PEA.

A life insurance is useful if you want to invest in a euro fund (fonds euro) and want to have a tax advantage that is better than a securities account in the long term.

Since your stated goal is the long-term building of wealth, PEA, PEE are more suitable. A life insurance can be useful eventually when you want to diminish your risk exposure.

As for rent, I am not an expert, but consider that this is not an effort-free investment. You have to do renovations and deal with tenants - including finding them and doing the paperwork. In addition, there is a big fee to be paid simply for doing the purchase transaction. Finally, what if you are not able to secure a tenant for every month? Those are things to consider.

Overall, my short-term plan (3-4 years) is to:

Invest every month a good chunk of my salary (e.g. 30%+) in stocks of [...]

You mention investing in individual stocks. It's worth to ask yourself the question of whether stock picking is a good investment strategy for you. Let's see:

1. A study by a company named Dalbar showed that from 1997 through 2016, the average active stock market investor earned 3.98 percent annually, while the S&P 500 index returned 10.16 percent in returns
2. SPIVA Europe Scorecard: Year-End 2018. They compare passive to active funds. A quote from their report:

"Over the 10-year period ending in June 2018, only 11 out of 490 eligible active funds investing in U.S. equities (denominated in euros) survived and outperformed the S&P 500®."

Do you have the knowledge and the experience to do better than the minority of active funds who manage to outperform the S&P 500 (and when they do, it could be simply because of luck)? Will you be able to hold onto a stock even if it drops by 50% of its value? Have you considered the fees to pay every time you buy a stock?

An alternative to picking individual stocks is ETFs (through your PEA/PEE). ETF fees are extremely low. Also, you can investing in capitalizing ETFs (de capitalisation) and they will automatically reinvest your gains in the ETF.

Finally, note that I am willing to take (moderate) risks in the short term. [...]

ETFs allow you to increase your risk. For example, you could allocate part of your portfolio to ETFs that follow companies from emerging or small markets.

Note:

You mention that you can invest in European stocks with a PEA. What you might not know is that you can also invest in non-European stocks through synthethic ETFs. As an example, the LYXOR MSCI WOR PEA is a PEA-eligible tracker that follows the performance of the MSCI World tracker. Incidentally, it's a good idea to start your PEA (and life insurance) as soon as possible. Even if you don't contribute to it right away, it will start the 8-year countdown. Same for life insurance if you decide to go that route.