Tips for Developing a Good Long-Term Investment Plan

It is a good idea to activate our savings. The return on a savings account is low.

Here are five tips for creating a long-term investment plan.

I strongly recommend that you do not park your assets permanently in your savings account, but that you, in addition to investing in real estate, draw up an investment plan with a share in shares and/or bonds.

In the long run you pay more, and because it also benefits the economy - and therefore the treasury - we all benefit in the end.

But in France, the savings account is sacred, and a reader was quick to respond to my recommendation with the quote:

Savings remain beautiful where you feel at home and safe.

This reader may be right that the notebook is optimal for him and that he needs nothing else. But there must be an exception.

The notebook certainly deserves its place in any investment plan that balances income and expenses, but overdoing it isn't worth it either.

In this article, I'll give you five tips for developing a long-term investment plan.

1. Provide a safety net

The corona crisis came unexpectedly and resulted in a temporary lower income for many families than expected.

To deal with unforeseen setbacks, the savings account is the ultimate: it combines flexibility and maximum capital protection.

A good rule of thumb is to have six to 12 months' worth of expenses in your savings account.

The savings account gives the certainty that when you need your savings, you will have it immediately.

In addition to flexibility, a savings account also provides the security (for a very illusory but good amount) that the state protects savings of up to 100,000 euros per year. person and person bank.

2. Recognize that your notebook is a lost item

Your money is therefore (relatively) safe in a savings account and retains its face value. Unfortunately, long-term inflation creates a false sense of security.

After all, as life becomes more expensive every year, the purchasing power of every euro decreases and your savings therefore lose value.

You can therefore also call the savings account a permanent loss account.

In the short term, the losses seem limited, but the effect of inflation is finally inexorable: 100 euros from 50 years ago is still worth about 18 today, the result of an average inflation of 3.5% over the last 50 years.

Current inflation is more around 5%. If this continues for the next 30 years, you can expect that what costs $100 today will cost more than $200 15 years from now.

In less than 15 years there will be nothing left in your savings account!

3. Keep it simple and cheap

There is academic research that rigorously shows that the more complex the investment product, the lower its profitability.

I'll spare you the details, but the bottom line is that it's best to stay away from financial producers with complex capital guarantee mechanisms (so-called click funds) and limit your investment plan to commitments in a selection of stocks, bonds, real estate. Stock and savings accounts.

For the average person, as mentioned above, an ETF formula is usually ideal.

However, be careful. One background is not the other.

Some fund managers promise to outperform the rest of the market through active management and charge management fees for doing so. Avoiding costs is something you should pay close attention to. Like inflation, costs have a disastrous effect on the performance of your investment plan.

Avoiding costs is also a fundamental point according to one of the most successful investors of all time, Warren Buffet. His advice is to build a portfolio that follows the market trends and at the lowest possible cost.

This brings us to the fifth and final tip.

4. Save money and diversify

So it's really not a good idea to permanently park an entire financial asset in a savings account.

Rather than aimlessly saving "for later", I recommend naming what you want to save for and how much you want to save.

Depending on all these goals, it can be determined how best to integrate savings into your investment plan.

For example, you may have the ambition to buy a new car in five years, which now costs 25,000 euros.

If this is your only savings goal and you want to be 100% sure that you currently have these funds, then already put 28,981.85 euros (5% inflation minus 2% interest) in your savings account today.

If you want or can save less, you have to settle for a cheaper model or be prepared to take a risk.

You can also use your savings in an investment plan to invest in companies that create added value and give you the opportunity to share in the profits.

It is not entirely risk-free and is only recommended for savings that you can lose for about 15 years or more. From time to time, a business may experience setbacks, but if managed properly, it is likely to generate more long-term returns than any savings account.

By choosing an ETF formula, you automatically invest in different companies and significantly reduce your risk because failures are compensated by successes.

You can often increase returns by taking advantage of tax benefits. The government is already pushing you in the right direction today with a tax break for long-term savings through PEA and equity life insurance.

As a result, this initiative offers not only tax advantages that should not be overlooked, but also interesting diversification.

5. There's no harm in being a little smart when investing

Even non-handymen sometimes like to hang a lamp themselves, although they prefer to leave the drastic electrical work to a specialist.

The same goes for your investment plan.

There are many quality platforms that allow you to buy well-diversified exchange-traded funds (ETFs) cheaply with just one click.

This way you can systematically expand a portfolio.

However, don't get carried away by emotions: don't buy like crazy when the markets are rising and don't panic about stock market corrections.

Keep an eye on the weightings you invest in the different parts of your investment plan, namely stocks, bonds, real estate and savings and adjust accordingly.

The optimal weighting depends on the extent to which the investment must ultimately be converted into returns.

As you get older, it becomes more important to systematically convert your fixed investments into certain income products other than your pension.

Conclusion on the investment plan

If you only want to use the savings account to secure your assets in the long term (for example to supplement your pension), your certainty is false.

The danger lies in inflation and the lack of higher returns by not sharing the profits of investments in the economy.

This does not alter the fact that a sufficiently large buffer in the savings account is always necessary in your investment plan as a safety reserve for unexpected expenses.

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