Financial Planning – Investments

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Investing a capital lump sum

It is possible to invest from as little as 1500€ if you are investing in France and from 7500€ if investing offshore.

The main advantage of investing your money rather than leaving it in the bank is that you can potentially obtain a much better rate of return in the long run. If you won’t need to spend the money for at least 3-5 years then there is a huge range of options open to you, no matter what attitude you have to investment risk.

If you prefer no risk at all to your capital then it is often possible to invest in a bond with a 100% capital guarantee. You are required to leave your money for the term of the investment (usually 5-8 years, although available in an emergency) but at maturity you will get back a minimum of your original investment plus returns linked to some kind of equity investment. Potential returns, if the bond performs well, are usually much higher than those available on deposit accounts.

If you prefer to accept some degree of risk to your capital and are prepared to see some fluctuations in value then it is possible to achieve higher returns still. We can introduce you to the world of bond portfolio management, with returns of 6-10% possible, dependent only on the degree of risk you wish to take. Such portfolios are a sound way of providing a high regular income, particularly popular with pensioners as they are relatively low risk.

Alternatively you may prefer the regularity of a With Profits fund. Here, some of the returns from the good years are held back to make up returns in the bad years and over a period of several years you should get steady growth from the addition of bonuses. Fluctuations are smoothed out over the period of investment and may be boosted by a bonus at maturity.

For the more adventurous, a mixture of different equity-based funds can be chosen to build a diverse portfolio. The funds themselves provide diversity because each one may invest in 100 different stocks at any one time, thereby spreading the risk, and they are actively managed by an experienced fund manager. There is a huge range available, from some of the world’s best-known investment companies, which includes themed funds, property funds, international funds and hedge funds. It is also possible to invest in funds of different currency denominations. The main advantage of this type of investment is that you can spread your money over many stocks with a relatively small amount of capital, thereby reducing the risk of incurring a loss.

For the larger investor we can help you to choose a portfolio management company who will build you a portfolio of stocks, bonds and other investments with regards to your risk profile and future needs. It is possible to invest through managers in the UK, Geneva or Monaco, according to your fiscal situation. Our independence allows us to choose whom to recommend on the basis of merit, which means that we only recommend a company if we know our existing clients are still happy with the service they receive. Clients with 250,000€ or more, or clients with large existing shareholdings, should ask about this service.

Investments can usually be made in any tradable currency.

Investing on a Regular Basis

For those who wish to save each month but are not impressed with bank account interest rates, it is possible to invest in funds from as little as 75€ per month. Over the course of several years the returns can be significant and most plans usually offer a degree of flexibility so you can increase or decrease contributions according to your circumstances.

Some people save for their future, for their children or with the aim of paying off their mortgage early.

School Fee Planning

Private school fees can be substantial and therefore large sums of money will be needed at certain points in time when the fees are due, which can be planned for if action is taken well enough in advance.

School fee planning should start as early as possible and if you have an idea of approximately how much money is going to be needed, and when, it is possible to estimate how much money needs to be invested on a regular basis.

The advantage of doing such planning is that it won’t be necessary to find large sums of money every year during your child’s education. Some people even start such schemes at the birth of their first child. If you decide at a later date not to send your child to private school then the funds could be used for something else.

Popular French Fiscal Frameworks

For French residents the most common fiscal framework is ‘Assurance Vie’. Any investment plan which is established according to the criteria for this framework will benefit from certain tax incentives, with the aim being to encourage long term saving. The plan will reduce the amount of capital gains tax paid, depending on when the proceeds are taken:

In years 1 to 4 35% tax on the gain *
In years 5 to 8 15% tax on the gain *
After 8 years 7,5% tax on the gain *
*these include social charges/taxes of 15.5%

 

Gains are taxed after an allowance of 4600€ for a single taxpayer or 9200€ for a married couple. This can make for a very low overall tax rate if the investment is held for at least 8 years and there is no maximum limit which can be held in an assurance vie plan.

One huge advantage of this type of policy is that the proceeds from policies and plans in the assurance vie framework are also exempt from inheritance tax up to a total limit of 152,000€ per beneficiary (unless investments were made after the policy holders 70th birthday). Above this there is a 20% tax rate until the limit of 902,838€ when the rate rises to 25%. Another major advantage is that the beneficiary can be specified, thus circumnavigating French rules of succession.

For clients who are unlikely to stay resident in France or for those in tax-free environments, the offshore world is attractive because proceeds from investments are usually paid out free of capital gains tax, which can provide useful tax planning advantages. Jurisdictions such as the Isle of Man also now provide strong investor protection, which rivals that of the UK and helps increase security and confidence.

The PEA (Plan d’Epargne en Actions) enables the investor to hold French and European investments without paying tax on the gains (although 15.5% social charges are applied). The plan must be held for 5 years before becoming tax free and restrictions apply on the amount of non-French funds that can be held.

As an alternative to tax free gains, it is possible to take a tax free income in the form of a ‘rente viagère’ (lifetime income or annuity). The plan is slightly restrictive for long term investment because any gains or income taken before 8 years have passed cause the plan to be closed. Another plan would have to be started and held for another 5 years before becoming tax efficient again.

Ongoing Evaluations

We can now provide instant valuations for many investment plans and in some cases clients can have online access to their own policy details, allowing them to monitor fund prices, payments, performance statistics etc.

Ask details regarding our financial planning and investments?