Many of you who have read this column for the years we have been writing it have noted that we have never discussed saving or investing money. Instead we have focused on French tax and legislation affecting the lives of those moving to, or living in, France.
What better time to discuss it than the festive season, when manic retail therapy and over-indulgence makes finances go a little awry?
When it comes to money, few people actually plan their futures beyond next week, let alone next month or decade. This is where the outside view, given by a professional, is useful.
What we see is many people using UK-only investment and saving structures, saying they do not know the options in France.
Let’s see if we can remedy both of these at once. Separate your money into different “pots”. As a guideline I suggest three: short term, medium term and long term.
Short term: this should be where you have immediate access, so instantly available. I generally suggest six months forward income, with three months being the absolute minimum.
This can be a savings account, so we suggest the Livret A or Livret de Développement Durable (LDD) as these are income and social charge free. There are limits, but for a couple this amounts to around €70,000, which is good enough for many people.
A useful hint: these accounts may lose up to 15 days’ interest when you take money out, so to stop this loss of interest, withdrawal is best after either the 15th or 30th of the month.
It is not advisable to leave too much on a current account, for reasons of poor return and banking security.
Medium term: this is where access is not immediate, maybe taking weeks. This may be a compte à terme (term deposit), or a long-notice account, where interest rates (insulting though they are these days) are higher than in instant access. This can also be in an assurance vie, using the fonds en euros, which gives a better return than many deposit accounts.
Such funds should never be deemed instant access, especially since they are not cash. The amount you place here is more a buffer for the next pot, and depends on your aversion to investment risk/volatility.
Long term: this is investing, so should be money that you have no plans to touch for the next five to 10 years. In France, it is common to use an assurance vie for this purpose, but a PEA (plan d’épargne en actions) or a compte titres, akin to a stockbroking account, may also be used.
These are generally stock market-related, investing in funds, stocks and bonds, so you need to be happy that values are volatile. A full analysis of your tolerance for volatility is vital before placing any money at all.
For this critical pot to work properly, the other two pots are essential and need to be managed, or the long-term pot will end in catastrophe.
It is easy to mix the medium and long-term pot with an assurance vie, as they can hold the fonds en euros and funds, known as unités de compte. Note that an assurance vie is never suitable for short term. For those who plan to draw an income, it is a question of planning what is required for the next few years and keeping this in the fonds en euros, with the remainder (or what you are comfortable with) in market-based investments.
Many years ago, I had a colleague who described saving as being like storing food.
We have the larder, for things that will be eaten soon, the fridge for things we want to last a little longer, and the freezer for things we might keep for a while. Prior to the existence of microwaves, this was an accurate analogy, but it still paints a picture and serves as … well, food for thought!
Long-term investing is often the pot people ignore the most, but it is more important than ever because of low to zero interest rates, and remains important no matter what the economic environment.
Keeping things in the UK is rarely a good option for French residents, causing complications for currency, succession and inheritance as well as losing out on significant tax savings.
Now I have made you feel bad about spending your money, Joyeux Noel!
This column was written by Robert Kent of Kentingtons financial advisers.
See www.kentingtons.com
