The stock market and gold are very profitable (albeit unstable) long-term investments, even taking into account inflation, emphasizes Marc Touati, president of ACDEFI. However, he said investing in primary housing remains a "must".
All savers and investors constantly ask themselves the question: which investments are the best in the long term (that is, at least 8-10 years) in terms of profitability and reliability? Over the past year, personal savings of citizens have grown sharply in all developed countries, and in particular in France. Therefore, this issue is of particular relevance. Thus, the savings of the French increased by more than 140 billion euros, reaching a total of almost 5.700 billion euros, not counting the real estate assets of French households, which amount to about 13.5 trillion euros.
Immediate prospects
It was this rain of money, along with the uninterrupted "printing presses" of central banks around the world, that allowed, among other things, financial bubbles to inflate everywhere, and in particular in the bond, stock, real estate and cryptocurrencies. However, trees cannot grow to the sky, and we must never forget the sound rule of finance and economics:
The more income increases, the more risk increases.
How to reduce investment risks
Therefore, the only real way to get good returns while limiting risk is to invest for the long term. In fact, by making deposits for one or two years, and even more so for several months, we most likely risk facing a crisis, a collapse in the exchange rate, and, as a result, seeing our savings melt away. Conversely, by investing for the long term, we are able to weather these storms and therefore preserve our savings. Hence the importance of investing for the long term.
To better understand this, let's highlight three types of long-term investments in which, as a rule, we are sure to win, or at least not lose: the stock market, gold and real estate. The problem is that these three investment vehicles are very expensive today. They are likely to experience a short-term decline, which, however, will rebound upward over a longer period. Which, again, increases the attractiveness of investing for a period of at least 8-10 years.
Gold
This short-term storm will be especially dangerous for stock markets, which were not hit at all by the 2020 recession. For the first time since its inception in 1897, the Dow Jones Industrial Average did not fall during the economic crisis and even rose by 8 %. Since stock markets have not responded to the economic upheavals of the past year, it can be said that their current levels already include a sharp rise in global GDP in 2021 and, therefore, they may suffer in the coming quarters.
However, this drop will only be temporary, and recovery will not be long in coming. According to a study conducted by the Credit Suisse Research Institute in collaboration with London Business School and the University of Cambridge, which covers 23 national markets, there is nothing to worry about: over the past 120 years, global equities have posted annual returns (adjusted for inflation) of 5.2%, versus 2% for bonds and 0.8% for Treasuries. Over the last decade alone, annualized real returns are 7.6% for stocks and 3.6% for bonds.
However, since stock markets are likely to lose in the short term and inflation declines over time, it would make more sense to also invest in a safe haven such as gold. Moreover, the yellow metal remains one of the best long-term investments. This is especially evident in the recent investigative report compiled by Nicolas Delourme and published by Editions Jean de Portal.
According to this 50-year study, investing in gold offers double the benefits. On the one hand, high profitability. On the other hand, confidence in the return of your investment in gold for a period of at least 10 years. Thus, over the last twenty years, the average annual return of the yellow metal was 8.7% against 3.2% for CAC 40, including dividends and 1.8% for Livret A.
Comment from Olga Ruzad:
I would like to comment on this point for novice investors. In this paragraph, the author means the purchase of securities in gold, and of course we are not talking about buying products or bars. When buying physical metal, you will pay VAT, and thus the profitability of such a purchase is questionable.
Real estate
However, let's not forget that once the stock market turmoil and inflation subsides, gold prices may begin to fall again. In other words, you should have a little in your wallet, but not too much. Let's say 15% maximum. In this context, it seems important to emphasize that real estate remains a good investment for the long term. Especially for those planning to purchase a primary residence. Research, particularly from INSEE, suggests that families who own their primary home are best protected from failure and poverty.
Admittedly, property prices are very high and risk falling by around 10% over the next three years, mainly in major French cities. However, as soon as the bubble deflates, housing prices will begin to rise again. In addition, thanks to the current low interest rates, every French person will get much more by becoming a homeowner than by remaining a renter. Moreover, the only capital gain that is not taxed in France is the profit received from the increase in the value of the main residence.
In conclusion, the best long-term investment remains buying your primary residence, to which we can obviously add long-term savings in investments and gold, while it is good to have a cushion of 3-6 months of income, just in case.
Marc Touati, economist, president of the ACDEFI cabinet
I hope you enjoyed the expert's recommendations. On a personal note, I would like to add that if you decide to take out a loan to purchase real estate, I will be happy to help you calculate the cost of mandatory loan insurance. In France, you are not required to insure your loan with the bank where you take it out. Sign up for a consultation, I will calculate the tariff for you and if the cost is lower than the tariff from the bank, I will help you prepare documents for insurance.
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