Why equities for the long term?
Over the long term, equities have historically been the financial asset that offers the best risk-adjusted return for the retail investor:
| Asset | Average annual return (30 years) | Risk |
|---|---|---|
| Bank savings account | 1.5 – 2.5% | Low |
| Capital-guaranteed life insurance funds | 2 – 3% | Low |
| Real estate (Europe) | 4 – 6% (rents + appreciation) | Medium |
| Broad equity index (dividends reinvested) | 8 – 9% | Medium-high short term, low long term |
| MSCI World | 9 – 10% | Medium-high short term, low long term |
| Selected small caps | 10 – 15%+ (with analysis) | High short term, manageable long term with method |
The enemy of wealth: inflation. At 2.5% a year, your savings lose 22% of their purchasing power over 10 years. A savings account at 2.5% barely keeps you at break-even — only equities can genuinely create value above inflation.
The magic of compound interest
Einstein is said to have called compound interest the 8th wonder of the world. The principle: each year, you earn interest not only on your initial capital, but also on the interest previously accumulated.
At 9% a year, capital doubles in ~8 years
Compound interest simulator
DCA — investing regularly
DCA (Dollar Cost Averaging, or regular automated investing) means investing a fixed amount at regular intervals — monthly or quarterly — regardless of the market level.
The advantages of DCA:
- Automatic smoothing of the purchase price — you buy more units when the market is down, fewer when it is up
- Elimination of timing bias — no need to know "when" to enter the market
- Enforced savings discipline — automation avoids emotional decisions
- Compatible with any budget — €50 a month for 30 years makes a big difference
Index ETF vs individual stocks
| Index ETF | Individual stocks | |
|---|---|---|
| Time required | Minimal (1h/year) | Significant (ongoing analysis) |
| Diversification | Automatic (100-1,600 stocks) | To be built (8-15 holdings) |
| Performance | Market less fees — beats 80% of active managers | Outperformance potential with rigorous analysis |
| Specific risk | Near zero | Per-stock risk (bankruptcy possible) |
| Fees | 0.1 – 0.3% a year | Brokerage fees on buy/sell |
| Ideal for | Passive long term, monthly DCA | Active investor with an analysis method |
Optimising long-term tax efficiency
Over the long term, taxation is one of the main optimisation levers. Most European countries offer tax-advantaged wrappers; in France, for example:
- PEA (ceiling €150,000): after 5 years, exemption from income tax on capital gains and dividends, only social levies (17.2%) apply
- PEA-PME (ceiling €225,000): same tax treatment as the PEA, specifically for French and European small caps
- Life insurance: after 8 years, an annual allowance on gains (€4,600 for a single person)
For a long-term equity investor in France: PEA + PEA-PME as a priority, then unit-linked life insurance for world ETFs. Investors in other European countries should use their own equivalent tax-advantaged accounts.