The most profitable financial investments
The importance of diversifying your investments
The famous adage “You should not put all your eggs in one basket” makes perfect sense when it comes to financial investments. First, diversification makes it possible to limit losses in the event of a default by a company, a State or a financial issuer. Second, it allows you to be exposed to major trends, whether sectoral or geographic, rather than being stuck with assets that underperform the market. Finally, diversification makes it possible to reduce portfolio volatility and improve portfolio performance.
Risk-free investments do not exist
Risk and return are two inseparable factors. Although some strategies, such as diversification or ETF “smart beta”, seeking to exploit market anomalies, makes it possible to improve the risk/return ratio; a more profitable investment generally involves higher risk. It is important to keep this risk/return couple in mind, because if an opportunity seems too good to be true (for example a 20% return presented as risk-free), then that is probably the case and it is best to stay away from it!
Saving as a financial investment
Livret A, LDD, PEL, or promotional “super passbooks” offered by some banks, it is possible to use traditional savings vehicles to invest cash. But in a context of high inflation, the real return on these products is negative, gradually reducing the purchasing power of your capital. To protect the latter, savers have little choice but to go to more dynamic, riskier instruments, but also offering better prospects for returns.
Our favorite investments
Life insurance
According to INSEE, more than a third of French households have at least one life insurance policy. The success of this product is explained by its very advantageous tax conditions: as long as the saver does not make any withdrawals, the gains made are not taxable. Early withdrawals, before the eighth year of the contract, are taxed at the income tax schedule or the single lump-sum levy (PFU) at a rate of 12.8%.
Note that the taxation of early withdrawals differs for payments made before September 27, 2017, where the subscriber has the choice between taxation on the income tax scale, or can opt for the single flat rate (35% for a contract of less than 4 years, and 15% for a contract between 4 and 8 years) to which are added social security contributions (17.2%). At the end of the eighth year, withdrawals made are exempt from income tax, but social security contributions remain due.
Comparison of the best life insurance investments
Initial paymentEntry feesPayment fees/arbitration feesManagement fees/yearNet return
(2021)Linxea Avenir€100 0.060% 2%Boursorama Vie€300 0.075% 2.49%Yomoni Vie1000 €001.6% 1.6%
The PEA
The Share Savings Plan is a very attractive fiscal envelope for investing in European and non-European shares, since capital gains are not subject to income tax or social security contributions as long as the holder of the plan does not make any withdrawal; allowing you to fully benefit from the effect of compound interest. For early withdrawals before the fifth year of the PEA, dividends and capital gains are subject to social security contributions and the IR scale (with a total withdrawal capped at 30%). For PEAs over five years old, withdrawn capital gains will be subject to social security contributions but exempt from income tax.
Comparison of the best PEA investments
Minimum x Order Reactions/ETF OPCVM Warrants & Turbos Fees
exit/guard/inactivityBoursorama 100 €YesYesYes0Bourse Direct10 €YesYesYes0Fortuneo1 titleYesYesYes0
The PEA-PME
Little brother of the PEA, the PEA-PME was introduced by the Finance Act of 2014 and aims to promote the financing of small and medium-sized enterprises. Its operation is identical to the PEA, with the notable difference being a small choice of available companies, whose market capitalization must not exceed 1 billion euros to maintain their eligibility. For unlisted companies, they must have fewer than 5,000 employees, generate a turnover of less than 1.5 billion euros and have a balance sheet of no more than 2 billion euros.
The PEA-PME payment ceiling is correlated to the payments already made on a PEA: the sum of payments made on both platforms cannot exceed 225,000 euros. Thus, if you do not have a PEA but only a PEA-PME, you can pay up to 225,000 euros on the latter. Conversely, if you already have a PEA in the ceiling (i.e. 150,000 euros), you will not be able to pay more than 75,000 euros into your PEA-PME.
Comparison of the best PEA-PME investments
Minimum depositNumber of PEA-SME supports/brokerage feesBourse Direct 1 000 €488• Between 0.99 - 3.80€
• 0.09% if the order exceeds €4,400BforBank€1,000 9000.50%Boursorama300 €9190.50%
The CTO
The Ordinary Securities Account allows you to invest, without geographical restrictions, in various financial assets such as shares, Obligations, ETFs and various derivatives. The advantage of the CTO lies in the wide choice of investment vehicles available but, unlike life insurance, PEA, PEA-PME and PER, it does not benefit from tax advantages. The effect of compound returns can therefore be slowed by an annual taxation of realized capital gains.
Comparing the best CTO investments
No. of stock exchangesNo. of countries PEADeGiro5030 NoBoursorama4842 YesFortuneo99Yes
The PER
Launched in 2019 via the PACTE law, the Retirement Savings Plan (PER) is available in an insurance version, in a mode of operation similar to life insurance, or in a CTO version. The PER offers an interesting tax advantage, since it is possible to deduct the amounts paid from your taxable income up to a limit of 10% of your annual income or 10% of the PASS (Annual Social Security Ceiling); the tax administration choosing the method of calculation most favorable to the taxpayer.
Comparison of the best PER investments
Minimum DepositPayment FeeManagement Fees/YearSpirica€500 0% 2%Yomoni Retraite€1,000 3% 1.60%Linxea Spirit€500 0% (excluding SCPI, SCI and ETF) 0.50%
Rental investment
A big favorite of the French, rental investment is divided into two main trends: medium/long term rentals, and short-term rentals, particularly focused on tourism. The first has the advantage of being relatively passive, provided that your tenants are respectful of your property and good payers. The second allows for higher profitability, but also requires greater involvement. It is possible to delegate certain tasks (cleaning, maintenance, concierge, etc.) but this subcontracting has an inevitable impact on profitability.
The SCPIs
Because rental investment can be time-consuming, it is possible to invest in real estate indirectly via Real Estate Investment Companies (SCPIs). In charge of managing a rental stock, the management company makes real estate investments and collects the rents for you, without intervention required on your part.
SCPIs therefore have the advantage of giving you passive exposure to the real estate sector. But this service comes at a cost, with entry fees ranging between 8% and 10%, plus annual management fees. Note that some SCPIs are eligible for Pinel and Denormandie schemes, allowing you to benefit from a tax rebate.
Comparison of the best SCPI investments
Minimum subscription/Share price/Distribution rateÉpargne Pierre2,080 €208 €5,36%Novapierre Germany€2,600 €260 €3.39%Sofidy Europe Invest23 50 €235 €YEAR
The FCPI
Mutual Funds for Investment in Innovation (FCPI) make it possible to invest in innovative SMEs, which are mostly not listed on the stock exchange. They are selected by managers, and the subscriber can benefit from a tax reduction of up to 25% of his payments, up to a limit of 12,000 euros for single people and double for married couples. Note that this discount will drop to 18% as of January 1, 2023, and is subject to the retention of shares for a period of at least 5 years. Be careful to take a good look at the fees of an FCPI, which consist of entry fees (5% maximum) and management fees, which can vary between 3% and 5% per year.
Crowdfunding
Crowdfunding is an English term that could be translated as “participatory financing”, and whose purpose is to have a project financed by a large number of small investors. On dedicated platforms, there are both real estate projects and startups looking for funds for their research and development projects. With a minimum entry ticket set at €100, this type of investment is accessible to as many people as possible.
The rates offered are often attractive, approaching the 10% mark, but this apparent profitability is accompanied by equivalent risk taking. Indeed, the principle of crowdfunding is to allow companies that have not been able to obtain funds via bank loans, the issuance of shares or bonds, to finance themselves directly from individuals. However, if these projects were refused access to funds, it was precisely because banks and institutional investors considered the project too risky in view of the expected gain. According to Les Echos Investir, the default rate of real estate projects financed by crowdfunding is between 1% and 2%, and late payments concern 11% of projects. Crowdfunding can generate great returns, provided you are in a position to select your investments well.
Cryptocurrencies
We end this top 10 of the best financial investments with the asset class with the highest earnings expectations, but which is also the riskiest. Bitcoin, Ethereum, Solana, Dogecoin... The number of cryptocurrencies available has exploded in recent years and the interest of individuals in these assets has unfortunately attracted scammers, attracted by this sudden influx of liquidity. Many projects, like Squid Coin named after the famous Netflix series “Squid Game”, are empty shells seeking to enrich their creators at the expense of investors.
But be careful not to throw the baby out with the bathwater: the presence of scams does not mean that the blockchain and the ecosystem that has been built around it are worthless. For example, the technology of “smart contracts”, popularized by Ethereum, has a real potential to reduce costs by eliminating intermediaries, especially in service activities. Given the volatility and the very speculative nature of cryptocurrencies, it is advisable to allocate only a small fraction of your capital to them.
The most important criterion for a financial investment: your risk tolerance.
To conclude, it should be borne in mind that regardless of the tax envelope chosen (PEA, PEA-PME, PER or Life Insurance) the first decision criterion must be your risk tolerance. Some investment vehicles, such as stocks, ETFs or cryptos, can offer high returns, but come with a significant risk of capital loss. For example, the average annual return of the S&P500 between its creation in 1929 and December 31, 2021, was 10.67%, but the American index fell by more than 50% during the subprime crisis. A “buy and hold” strategy will therefore not be suitable for risk-averse investors.
