Investing in the stock market presents a risk of total or partial loss of the amount invested. This article is a collaboration between Slate and Fortuneo. It is provided for informational and educational purposes and does not constitute investment advice from Fortuneo.
A lack of financial education
Say the word Stock Market, and instantly, for most of you, images of Wall Street, of traders on the phone, pop into your mind. Add to that a hint of Leonardo DiCaprio’s possessed speeches in the film. The wolf of Wall Streeta bit of scandal like the subprime crisis, and you are in the middle of a cliché on the financial markets.
There are many received ideas about the stock market, yet the trend shows on the contrary an increase in individual investment and particularly among young people: the rate of direct share ownership among those under 35 has almost doubled. It went from 2.3% to 4.4% between 2019 and 2021 according to the Autorité des marchés financiers (AMF).
However, the financial markets offer an opportunity to diversify and potentially grow your wealth, while making your money useful to the economy, whether by investing a few hundred or a few thousand euros. Invest in the stock market allows you to support companies whose ethics you share, support that is not only associated with profit.
Please note, however, that investing in the stock market presents a risk of total or partial loss of the capital invested and must be considered over the medium to long term. Keep in mind that any money invested may be lost.
This is what motivated Anthony, an eco-management student, when he invested part of his early savings in a large global energy company. “What made me want to invest in the stock market or simply to take an interest in the field of investment is to support companies in which I believe, which have great ecological projects or for the future of our generations.“, he explains. Like many beginners, he didn’t know how to go about it. “Before investing, I didn’t know much about it. I quickly got information from books, on the Internet, asking those around me, my parents.”
For many, the stock market appears as an abstract world, with a vocabulary reserved for insiders and where astronomical sums of money circulate. The reality is different. You can invest according to your budget, invest your money intelligently and make a profit.
For this, it is necessary to have certain keys. How to understand the markets? What is a share? How to buy, sell? And above all, what are the risks? With Fortuneo, follow the guide.
What is the stock market?
The stock market is a market in which investors trade securities. “In general, the securities traded are shares”explains Matthieu Bouvard, professor of finance at the Toulouse School of Economics and the Toulouse School of Management.
“Stocks have been issued by companies in the past to fund themselves. They sold them to investors in exchange for capital so they could then invest and grow.“. When the shareholders of a listed company want to resell the shares they bought, they do so on the stock market.
A share represents a fraction of the company’s assets. When you own a share, you have two types of rights: financial rights, which allow you to receive dividends, and control rights. “You will participate in the governance of the company», continues Matthieu Bouvard. This means attending general meetings of the company in which you are a shareholder, and voting on company decisions, such as appointing the CEO or making an acquisition.
Dividends and capital gains, two components of return
Shares can be a source of dividends and capital gains (or capital losses where applicable). During the time you own stocks they can generate dividends, this is the first part of the return. If the business grows and becomes more profitable, your future returns will be greater. This return is the counterpart of the risk that you, as a shareholder, are ready to take.
“From an individual point of view“, explains Matthieu Bouvard, “the question to ask is what level of risk am I willing to bear and what return am I going to ask for?»
The second part of the return is called a capital gain. It corresponds to the difference between the acquisition price and the sale price, when the second is higher than the first. The resale can sometimes give rise to a loss in value, in the event of an unfavorable development of the activity and the investments of the company.
Find the right investment envelope
Let’s find Anthony who, after a little less than two years of activity on the financial markets, considers himself an investor “quite experienced“. “I started with 1000 euros. I continued to invest gradually. There were capital gains that I did not cash, which I let work, and others that I cashed.»
To get started without making a mistake, where to start? “You must already find an investment envelope, mainly in the most used, securities accounts or equity savings plans (PEA)“, explains Alex Michaux, wealth advisor at Fortuneo. “In these envelopes, we will integrate investment media that take different forms: shares, investment funds, bonds, derivatives, etc.»
For the selection of shares, the investor has the choice between free management, in total autonomy, or management under mandate, as at Fortuneo, which allows the entire portfolio to be delegated to a partner management company.
The investor profile, decision support and protection
In order to determine the investments best suited to your desires, your convictions and your means, it is necessary to define your investor profile. It is a decision support tool and also a protection tool. It takes the form of a questionnaire that you systematically complete when opening a Stock Exchange account. It must also be updated annually. Its objective is to improve the security, transparency and functioning of the financial markets, as well as the protection of investors.
“You are asked questions about your wealth goals, your wealth situation, your financial knowledge, about the stock market in general and your experiences, and your risk tolerance», specifies Alex Michaux. “This questionnaire is updated at least once a year because the objectives can change during life.»
The result of this questionnaire draws your profile. Depending on your risk appetite, you fall into one of three categories: secure, balanced or dynamic. Your investor profile and your wealth objectives, for example preparing for your retirement, will guide the choice of your investments. If you have chosen discretionary management, the management company must respect your profile. Which is a security for you.
Ordinary securities account versus stock savings plan
How to choose between opening a Ordinary securities account (CTO) and a stock savings plan (PEA or PEA-PME)? The CTO allows you to invest in all types of assets, for example in American or emerging country securities, in bonds, etc. and you can open as many CTOs as you wish.
The PEAhe focuses on certain European titles, and you can only open one. Created in 1992 to promote private investment, the PEA is still relevant today. Capped at 150,000 euros, it benefits from a significant tax advantage provided it remains committed over 5 years: the capital gains generated by the PEA are then exempt from the 12.8% tax and are only subject to social security contributions up to 17.2%. This is not the case of the CTO, whose earnings are subject to the single flat-rate deduction of 30%.
After opening one or more CTOs and/or PEAs, it’s time to make their first purchase. What advice to give to a beginner? “The answer is related to your investor profile: are you ready or not to take risks with the money you invest in the stock market? argues Alex Michaux. “You always have to tell yourself that the money you invest in the stock market is not money you’re going to need in the short term, you’re ready to lose it. For a beginner, I would recommend following your beliefs, picking businesses that appeal to you. Always keep in mind that speculation is quite dangerous“.
Develop an investment strategy
Regarding the investment strategy, Alex Michaux continues: “You have to set investment horizons and respect them, invest gradually rather than putting everything in at once. You also need to diversify your portfolio and your asset classes. By diversifying your portfolio, you also diversify your risk, as one industry may be affected, but not all.”
And in the event of stock market turbulence, which can lead to the fear of realizing capital losses and losing the sum invested? “Do not forget the target price you have set. In some situations, you may want to stop the loss fast enough. In others, it is better to wait. What matters is your belief in the stock you have chosen and your investment horizon. To realize capital gains, it takes several years.”
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Photo credit: Laurence Revol – Fortuneo
1 — According to AMF Savings Observatory Letter No. 43, July 2021. Back to article
2 — The securities eligible for investment via a PEA are: listed shares or, under certain conditions, unlisted shares, investment certificates, cooperative investment certificates, mutual certificates, shares in limited liability companies (SARL ), equity securities of cooperative societies. The companies issuing these securities must have their registered office in the European Union or in a State of the European Economic Area (EEA). Are also eligible units of collective investments (funds and Sicavs, ETFs, etc.) invested at least 75% in shares and securities of companies having their registered office in the European Union or a State of the European Economic Area (EEA). The following are excluded from the PEA: securities or dismembered rights, shares in civil real estate companies (SCI), shares in real estate companies (SIIC), bonds, securities held within the framework of employee savings (PEE or Perco) or acquired when stock options are exercised, share subscription warrants. Back to article
3 — Taxation in force, subject to change. Back to article