It has always been important to make your money work as hard as possible for you. However, that is possibly even more important in the current economic environment. Whilst inflation in France has now fallen to around 1.6%, on an annualised basis, we have seen major fluctuations over the last year, due to pressures on commodity and food prices. Deposit interest rates in the Euro zone are now at around 2.5% pa gross, although temporary “special offers” may be available.
For French residents interest earned on a bank account is subject to both income tax and “contributions sociales”. Even if you pay no income tax these “social taxes” will reduce the value of any interest by over 10%. Therefore the net return on your money in the bank is unlikely to be much greater than the rate of inflation even if your marginal rate of income tax is very low.
Where should I invest?
Although nobody can accurately predict the future, historically over the long term, the only way to protect your savings from inflation is to put your money into asset-backed investments such as property, commodities or shares. However, as we are all too aware at the moment, such investments carry a certain amount of risk and therefore it is important to make sure that you spread your investment risk. This can be done by investing in a range of assets and in different sectors within any asset class (for example, have exposure to property, commodities and shares, using funds rather than direct investment and within your share investments use a combination of funds investing in different geographic regions and economic sectors).
The idea with asset-backed investments is that your capital and, as a result, your income will grow over the years to provide you with a buffer against inflation. However, as the current situation has made us all very aware, movements in markets can mean that your capital and income are at risk and therefore it is also sensible to always maintain a reasonable “emergency” reserve in safe secure investments, such as bank deposit accounts.
Many people will currently be scared at the prospect of investing in either property or the stock market, but the old adage of buying when values have fallen still holds good. 2009 is likely to see further economic turmoil but most analysts are predicting the beginning of recovery towards the end of the year. As a lot of the bad news is already factored into share price valuations, many are taking the view that stock markets globally are “cheap”, although they could get cheaper before prices start to rise.
What else can I do?
Whatever investment strategy you adopt, you should ensure that your investments are as tax-efficient as possible. There are various tax-advantaged bank deposits available and you should use these wherever possible. Also, certain forms of investment are more tax-efficient than others. Shop around for the best rates when looking at bank deposits, but always bear in mind that “if it looks too good to be true it probably is”.
The positive long term effect that professional advice can have on your standard of living is never to be under-estimated. All of the points made above are fairly obvious but a good quality financial planner will help to devise a personal investment strategy to suit your own circumstances.
Blevins Franks is the leading international tax and wealth management advisers to British nationals living in Europe. Contact: 0800 668 1381 Freephone UK, 0805 112 163 Freephone France, [email protected] or visit www.blevinsfranks.com for more information.
This article is for general information purposes only and does not constitute legal, or other professional advice. We would advise you to seek professional advice before acting on this information.