For almost 20 years now that I have been practicing this wonderful profession of wealth management consulting, I have been meeting savers who are looking for strategies and solutions to improve the return on their long-term savings.
At the beginning of my career, around 2004/2005, the question of the return on savings was simple, as the euro fund of the life insurance contract was the answer to all questions.
In 2004, the average return on euro funds was around 4.50% with an inflation rate of 2%. In short, why make it complicated and try to convince savers of the need to take advantage of the capacity of companies to create value in the long term by investing in shares, when the euro fund could achieve a return of 2 points above inflation without effort, without risk and without having to lock in savings for 10 or 15 years.
The investment on the equity markets was then only a diversification for savers looking for a high return and especially for commercial investors looking for a better remuneration!
Since 2004, the world has changed radically. Today, the euro fund has disappeared. No one talks about it anymore and considers investing in it on a long-term basis to generate returns. Today, in the collective mind, the euro fund is synonymous with long-term impoverishment. No one who has money to invest in the long term thinks: “I’ll find a good euro fund and my retirement is assured, without risk”.
By the way, and for the record, for the 13 years of the site’s existence, the end of the year was traditionally devoted to euro fund yield announcements. At that time, it was a race to find the best return and to rank the euro funds according to their return. This year, and this is the first year, nothing! I didn’t even think about it… and above all, no one has yet published the yield of their euro fund with fanfare and trumpets.
This is really the end of an era.
Today, the euro fund is a risk-free investment, but above all it is almost without return. The euro fund is no longer an investment option except for those who must imperatively ensure the full availability of their savings to finance a project or a nearby need.
Today, the saver who wants to invest his savings in the long term is in trouble (as is his advisor).
The disappearance of the euro fund leaves a gaping hole that leaves the saver facing the unknown. As nature abhors a vacuum, horizon management and guided management seem to impose themselves as a particularly attractive alternative.
Is target-date management or managed management the future of the euro fund?
I firmly believe that target-date management could well be the future of financial management of savings in life insurance or PER. Horizontal management is a perfect solution for the saver:
who wish to invest their savings over the long term (and who therefore do not need to have their savings available in the short or medium term);
who wants a dynamic return on his savings by investing in the stock market;
but who has neither the skills nor the desire to take the time to manage the allocation of his savings in his life insurance contract or his PER.
But this also assumes (and this is the problem) that the investor is able to accept a strong variation in the value of his savings in the short term if he really wants to hope for an attractive return.
For this client, target-date management is an excellent long-term savings solution that should allow the saver to consider an attractive return on his savings.
But a management with a horizon or a piloted management will never be profitable if the fees of the life insurance contract or the PER are too high.
Beyond the risk of investing at the wrong time, as could be the case at the moment (even if in reality we know nothing about it), target-date management and even more so managed management will never be profitable for the saver if they are implemented in a life insurance contract or a PER whose fees are too high.
High fees will destroy all prospects of attractive returns. Horizon management or managed management in a context of high fees is of no interest because the return provided by risk taking will be captured by the fees and will therefore not benefit the investor.
Thus, the investor saver will have imperatively to save in a life insurance contract or a PER with the lowest management fees (cf. “How to choose its PER? Our selection of 6 competitive PER”). To opt for a piloted management or a management with horizon is not enough to hope to make a good investment! It is necessary to avoid doing it at the moment and above all it is necessary to find a contract with low management fees… but above all with investment supports with low fees such as ETF and/or Clean share UCITS.
And if you don’t want to invest on the stock markets, there is only real estate investment to hope to better value your savings.
If you don’t want to stay on the euro fund to avoid impoverishing yourself with a mediocre return in an inflationary context, and if you don’t feel capable of managing the stress of volatility attached to the piloted management or the management with horizon, you have no other choice: Invest in rental real estate or even in a second home.
As we explained to you yesterday in this article “Stock market: Are you able to assume the stress of volatility? it is not reasonable to switch all the secured savings to a piloted management or a management with horizon as the stress induced by the variation of the stock exchange prices does not allow you to consider serenely this solution.
Moreover, in a context of rising interest rates, bond funds cannot be considered as efficient solutions to protect your assets against the volatility of the equity markets.
It is then that rental real estate investment or even the purchase of a second home becomes inevitable to invest in the economy, without taking the risk of a too strong volatility that you would not be able to assume.
It will be mainly a question of investing in a real estate property whose irreproachable quality will be able to be source of important valorization of the patrimony in the long term in complement of a weak but protected income. It will always be better than the euro fund.
To be continued.
ps: In my mind, the piloted management or with horizon is obligatorily in dynamic profile. A conservative or balanced profile implies a significant dose of bond support. It seems particularly risky to invest in bonds in a period of rising interest rates. For an investor who has, for example, €500,000 in life insurance funds, I think it is more efficient to invest €150,000 or €200,000 in dynamic or target-oriented management and use the remaining €300,000 to invest in rental property rather than using conservative target-oriented or guided management for €500,000.