France, started investing, don't know how to proceed long term?

Question

I live in France, I am 24, and recently started being able to invest. To do so I decided to open a "Livret Bleu" with my bank.

The Livret Bleu is virtually the same as a Livret A, same interest rate (0,75%) and is tax-free. The main difference is that it will automatically upgrade to a Livret Orange once there is more that 22 500€ on the account.

A Livret Orange keep the same interest rate (0.75%) but is no longer tax free, and has no limit on the amount of money that can be on it.

My plan is to invest every bit of money that is not used for necessary life expense. Today this represent something between 200€-400€.

My problem is that, no matter how I look at it, the amount of money that this will generate is laughable. Using my bank's simulation, an Livret Bleu with 200€ as base deposit, plus 200€ of monthly deposit would generate around 1 934€ after 15 years.

So my question is this :

If I wanted to become Financially independant, where should I start investing ? Was a Livret Bleu a good choice, or should I look to another alternative ?

Answer 1

Prepare to know yourself is the most first step of everything. A lot of people losing money in investments, not because of bad luck, but due to failure to understand flaws in decision making.

Daniel Kahneman Thinking, Fast and Slow will prepare yourself to avoid bad investment decisions. The market is full of investments derivatives, which, unfortunately, will rip off the investor.

Why thinking slow is important:

For any starter, basic knowledge on cost and risk is something that many people neglect. A lot of investment funds are hiding the real cost and risk from the advertised report, i.e. many people already lost a sum of investment when those funds take a cut from the purchase cost and annual managing cost. In addition, avoid any funds that claim to carry out active managing activities. In which, those funds always selectively published the best performing period while hiding all the bad record.

Why cost is important for your investment return

Let say you have $1000, now there are 2 mutual funds with the same portfolio with different promise and fees

• Fund A is an active-managed fund say and the published prospectus shows an average 18% annual returns records of 2 years, charge 2.5% from the purchase fees, 2.5% for annual management fees, no selling fees.
• Fund B is a passive fund. It shows an average of 6% annual return of 5 years, charge 1% on the purchase, 1% on selling but no management fees.

Which one will you choose? If you choose Fund A, then you definitely need to spend time with Thinking, Fast and slow.

Beware of active managed ETF

Besides the hidden cost trap from various mutual funds, a beginner must also be careful about low-cost investment tools like ETF. The trillions of dollars financial derivatives market are known to inject half truth facts into various reputable news media. I.e. many simply write stories about 5% good earning from actively-managed funds but hides 95% that didn't make it. As shown by this article, 95% of equity funds are beaten by the simple market index.

In France, just look for the primary index funds ETF with no hidden cost or low annual cost maintenance ratio, i.e. passive market index ETF should have low expense ratio that shouldn't be more than 0.2%. For comparison, Vanguard index fund ETFs expense ratio are range from 0.01% to 0.05%.
You should deposit your investment (not saving for a rainy day) in a long run period. Unless France government f*ck up in the long run, otherwise, in a 15~20 years period, you have a worry-free investment.

You should also continue to put some money into Livret Bleu as rainy day funds. Because the worst investment decision to make is selling a long term index fund during an emergency (thus you should also plan your insurance coverage).

Answer 2

If you want to start investing, as you said, you first need to learn about it :)

I think here you can learn some, but you need to for example read some investing books, learn about the stock markets but also the different products our banks offer (I am also from France and have started investing a tiny bit, in different products, as a way to learn how they work). I do not have specific content to direct you towards, but maybe some more experienced people can point you in the right direction for good learning material ! When you have learned enough, you will be able to make good decisions on your own.

Anyways, for a quick tip, have you checked out what rates you can currently get for a PEL (plan épargne logement) ? My parents opened one for me a while back, so I have a 2.5% interest rate still going. Maybe you can find an interesting PEL, or if you already have one that might be great ! At least, I think you could look into it ;) Also, maybe look at the "assurance vie" products, which can be very good ways to invest in different products (from the safest, lowest interest rates cash funds, to the higher risk stock markets), with low taxes if you hold on to the product for more than 8 years.

Answer 3

Well, consider investing in the bank stock.

In other words invest in what-you-know or invest in what-you-are-interested-in.

But a position in the U.S. dollar will find an interest rate. So that's an investment in a short-term U.S. bond ETF. Or, for instance, an investment as an un-leveraged sell-position in the EUR/USD currency pair where a Forex broker pays daily interest as the rollover.