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Diversification of savings: life insurance threatened


In the face of negative rates, savings yields are drastically reduced and pave the way for a necessary diversification of savings towards real assets, equities, and real estate. A small demonstration is needed to explain how negative rates affect the distribution of savings and more broadly that of wealth.

End of risk-free savings and positive returns
Risk-free, guaranteed-rate life insurance contracts invested in euro funds are widely acclaimed by French savers. Life insurance contracts collect some 1,750 billion euros, more than two-thirds of these life insurance contracts are invested in funds in euros. Most of the funds in guaranteed capital are government bonds (also known as sovereign bonds), which are deemed to be relatively volatile. This investment is therefore secure, ie the capital and interest paid are guaranteed.

But what about in a sluggish economic context? The monetary policies carried out in recent years by the European Central Bank (ECB) have hurt the remuneration of savers. Still lower pay rates as an incentive to force commercial banks to make more loans. The stated goal is clear; return to growth by promoting investment and consumption, creators of wealth. If until recently rates were historically low, rates have since been negative. The benchmark borrowing rate on the French market, the 10-year Treasury Assets Bond (OAT), fell below 0% to stand at around 0.30%. An unprecedented situation that suggests little hope for a positive, risk-free return on short-term investments. The time is now for the diversification of savings, saving without risk becoming a "vestige of a bygone past" as designated by Allianz France.

Real estate, a safe bet
In this context of low-interest rates, the predominantly real estate funds are doing well and offering good performances. According to a study by Good Value For Money, the yields offered in 2018 for real estate-oriented euro funds yielded an average of 2.37%. Only downside, access to this type of savings is binding. Indeed, many distributors of this type of contract impose to invest in 30 to 50% of risky funds, which involves risk-taking, which may be displeasing to many investors.

In this context of diversification of savings, the temptation is great to invest in stone, a safe haven par excellence. Attractive credit rates and relaxed lending conditions significantly increase debt capacity. Current lending rates are historically low, averaging 0.75% over 10 years, 0.95% over 15 years, and 1.15% over 20 years. Added to this, the tax systems (Pinel, Censi-Bouvard) extended until December 2021, but especially the status Leaseback (Lease in Non-Professional Furnished), which are additional arguments in favor of a rental investment. All these factors encourage investors to invest their money in real estate.

However, we must take into consideration a price per m2 that continues to grow and remain vigilant on the location and the quality of the location of the property. Major cities such as Paris, Bordeaux, Lyon, and Marseille remain the property of real estate investors because of their economic dynamism, their student population and their demographic growth. The demand for housing is still strong, especially for small areas.

Diversify and insure your savings with My expat
Extremely low-interest rates are therefore distressing to place money but a sign of encouragement to invest in real estate. My Expat, allows any buyer, expatriate or not, to entrust the search for real estate in cities with high potential: Paris, Bordeaux, Lyon, and Marseille. The ergonomic and intuitive My Expat platform is at your disposal to follow the progress of the project step by step. On the platform, you can also consult the photos of the properties visited, read the report of the visits, as well as download the documents necessary for the realization of the project. A completely dematerialized turnkey solution entirely dedicated to the completion of your project. You can invest from anywhere, without having to move.
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