Publish-editorial — Turbulent markets, rising interest rates, rising inflation, risk of a bubble in overvalued assets… There are many opportunities to worry. And yet, the best attitude is not necessarily in action: here are 3 good practices to use without moderation to keep a cool head during troubled times.
stay the course
The first thing to do is probably the most difficult. You should resist the temptation to secure your savings, especially after a downturn.
What determines the performance of your long-term wealth is asset allocation, i.e. the distribution of wealth between the different categories of investments such as stocks, bonds and real estate. . It is estimated that this distribution explains 85% of the return and the risk, the 15% being due to the choice of the instruments within each of these categories.
However, in a bearish period, the weight of the most volatile assets tends to be reduced due to the fall in prices. Conversely, assets that have risen, remained stable or fallen the least, gain weight in relative terms.
Here is an example: you initially held EUR 5,000 in equities and EUR 5,000 in bonds, considering that this allocation meets your risk profile and your horizon. There comes a period when equities fall sharply while bonds fall slightly. You now hold 3000 EUR of shares and 4500 EUR of bonds. The initial allocation of 50% equities and 50% bonds is now 40% equities and 60% bonds: the balance has changed, the less volatile assets have gained weight.
Thus, since a portfolio naturally desensitizes in a bear market, there is no need to secure more. On the contrary, you must take advantage of it to rebalance and return to your target distribution… Which means, sell what has gained weight to reinvest on what has fallen. In our example, sell 750 EUR of bonds and reallocate them to equities in order to restore the balance.
It is not a question of making a bet on the future (no one knows), but simply of rebalancing the portfolio to maintain a constant risk profile over time. To do the opposite, in other words to secure, is to miss the rebound, because it is very difficult to return to the markets once you have left them.
In life insurance, you can arbitrate by mentioning an amount in euros, or by aiming for a target distribution. Work is made easier: take advantage of it!
Reduce costs
We don’t know the future performance of the markets, but we know the costs. Fees regularly drain savings and limit their growth. They are often ignored by investors during market rises, but that’s no reason to ignore them!
In the long term, media management fees are the most costly: know how to identify them. The information is sometimes well hidden, even if there is progress. The DIC, the Key Information Document, must indicate the annual management fees, but also the ongoing charges deducted over a year, which are more complete because they also include the cost of the instruments used by the manager.
ETFs (trackers) are among the least expensive financial instruments. Check if your active UCITS has a better long-term performance than a tracker invested in the same market segment. If this is not the case, arbitrate without remorse: the difference in fees will remain in your pocket rather than feeding a management company that is struggling to do better than the index.
Opt for scheduled payments
Scheduled payments consist of investing the same amount each month in your life insurance contract, by direct debit from your bank account. Scheduled payments are easy to set up and can be revoked at any time.
The benefits are many. First of all, they allow you to save without thinking about it, in a mechanical way. By placing the payments right after your salary has been collected, you consider the savings as an incompressible expense, rather than a balance when there is something left over at the end of the month. In short, you save more.
And above all, you save better: by saving like a metronome, regardless of market levels, you invest both when the markets are high and when they are low. You will never have invested at the lowest, but never at the highest either: you thus limit the risk. Scheduled payments are perfectly suited when you adopt a rather dynamic profile, with a good share of equities, but less useful for low-risk products for which it is in your interest to pay the maximum as soon as possible.
ETFs are investment vehicles that present a risk of capital loss, and their performance is not constant over time.
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