Investing for the long term: How to build a solid portfolio?

Long-term investing involves placing funds in financial assets, such as shares, bonds, property or alternative investments, with the intention of holding them for an extended period, usually several years. Investing for the long term is a key strategy for growing your wealth sustainably and saving for the future.

To build a solid portfolio, it is essential to diversify your investments. This reduces risk while maximising opportunities for return. It is also necessary to manage your portfolio rigorously, adjusting investments in line with market trends. By following these principles, you can ensure stable, controlled growth of your capital over the long term.

Investing involves risks, including the loss of capital. It is essential to seek professional advice to assess these risks before investing.

Investing for the long term is an effective way of protecting capital while generating attractive returns. Unlike short-term investing, which is often based on rapid speculation, long-term investing offers a more stable vision and a gradual accumulation of gains.

Reduce the impact of market volatility

One of the main advantages of long-term investing is the ability to weather periods of volatility without being affected by short-term market fluctuations. Long-term investors benefit from time to recover from temporary falls and take advantage of a general upward trend in the financial markets.

Compound returns: a major advantage

Compound returns, or the snowball effect, allow investors to reinvest the gains generated by their investments to increase their capital. The longer you allow your investment to grow, the greater the effect of compound returns, increasing your capital exponentially over several years. This strategy is particularly effective for long-term investments, where time and the capitalisation of gains play a crucial role in optimising returns.

Optimising taxation with long-term investment

Long-term investment offers significant tax advantages. In general, capital gains realised on investments held for several years are subject to lower taxation, allowing investors to keep more of their gains. What's more, some long-term investment products, such as retirement savings plans and life insurance, offer access to attractive tax schemes, including tax exemptions and tax deferrals.

Investing for the long term has its advantages, but it also entails risks that are important to understand before making a commitment. Assessing these risks is a key step in securing your investments over the long term.

Market risk

Financial markets are subject to fluctuations due to various factors, such as economic developments, financial crises or geopolitical tensions. These fluctuations may lead to temporary falls in the value of investments. Although these market movements can be mitigated over the long term, it is essential for long-term investors to consider these risks and prepare their strategies accordingly to manage periods of volatility.

Liquidity risk

Some long-term investments, such as private equity or property investments, may present a liquidity risk. In other words, it may be difficult to sell these assets quickly without incurring significant losses. This risk becomes problematic if you need access to your funds at short notice, for example in the event of a financial emergency. Careful management of duration and liquidity needs is therefore essential in this type of investment.

Concentration risk

Investing a large proportion of your portfolio in a specific sector or company can increase the risk of concentration. If this sector encounters difficulties, this can have an impact on the overall performance of your investments. Diversification is a recommended strategy for limiting this type of risk.

Regulatory risk

Changes in regulations, tax laws or government policies can affect your investments over the long term. Unforeseen changes in market rules or government intervention may have an impact on the profitability or viability of certain investments.

Investing for the long term requires a considered and disciplined approach. Your choice of investments should be guided by your financial objectives, risk tolerance and investment horizon. An effective strategy is based on a combination of different asset classes and intelligent diversification.

Long-term equities

Investing in long-term equities is a strategic choice for those wishing to grow their capital over several years. By focusing on solid companies, particularly in high-potential sectors such as technology, you can benefit from continued growth in the value of your investments. Well-established companies with solid management and a strong capacity for innovation are attractive options for maximising the value of your portfolio. However, it is crucial to bear in mind that equities can also experience periods of volatility, which requires a patient and disciplined approach.

Bonds: Stability and Moderate Returns

Long-term bonds are another important component of a diversified investment strategy. They generally offer more moderate returns but provide greater stability. Investing in solid government or corporate bonds can provide a regular income while limiting risk. These investments are less volatile than equities and can be a good way of balancing a portfolio.

Real estate: a sustainable investment

Property is another long-term investment that is widely favoured for its ability to generate regular returns through rental income and capital appreciation. Property investments can be made directly, via rental properties, or indirectly through SCPIs (Sociétés Civiles de Placement Immobilier). While property can offer protection against inflation and a stable return, it also requires active management and a good knowledge of the property market.

Private equity: a high-potential investment

private equity is an attractive option for investors seeking to diversify their portfolio while aiming for higher returns. By investing in unlisted companies, which are often in a growth or restructuring phase, investors can benefit from returns that are potentially higher than those on traditional stock markets. This form of investment allows investors to explore a variety of sectors, such as technology, healthcare or renewable energies.

The Eurazeo Wealth Solutions funds offer options for investing in innovative, high-potential companies, but private equity involves risks such as illiquidity and uncertainty over the long-term performance of companies. That's why it's essential to adopt a well thought-out strategy and invest via specialist funds or tax schemes such as the PEA-PME.

To manage long-term risk, diversification is a winning strategy. Rather than concentrating your investments in a single asset class, it is important to spread your investments across different classes, such as equities, bonds, property and alternative investments such as private equity. This approach reduces the impact of fluctuations in a particular sector or market, while optimising your returns. By diversifying geographically, by sector and across different asset types, you can better withstand market volatility and take advantage of various growth opportunities.

One of the best ways to limit the risks associated with long-term investing is to adopt progressive investing, also known as dollar-cost averaging (DCA).

Advantages of Dollar-Cost Averaging (DCA)

Dollar-cost averaging (DCA) is a strategy that involves investing a fixed sum at regular intervals, regardless of market fluctuations. Although often associated with equities, DCA can be applied to other types of investment such as bonds, mutual funds or even cryptocurrencies.

This method avoids the temptation to predict the best times to invest. It therefore reduces the risks associated with short-term volatility by smoothing the average purchase price. By buying at different times, you acquire more shares when prices are low and fewer when they are high. Over the long term, this can offer a more advantageous average purchase cost than an approach in which you invest a large sum all at once.

Long-term investing offers solid prospects for growing your assets, provided you adopt a well thought-out strategy and manage your risks wisely.

This article was produced by Eurazeo Global Investor and is for information purposes only. It should not be construed as a solicitation or offer for financial products, nor as legal, tax, financial or other advice. Readers are invited to contact their own advisors for any analysis relating to the content of this article. The information presented does not claim to be exhaustive. Accordingly, this document alone should not be relied upon in making an investment decision. Please refer to the legal documentation of the funds mentioned before making any final investment decision.

Past performance is not necessarily indicative, nor a guarantee of future results. Information on past investments is provided solely to illustrate the nature of these investments and the related investment strategy and process. There can be no guarantee that the investments made by the funds will produce comparable results, or that the targeted returns will be achieved. Investing in private equity/private debt funds involves a risk of capital loss and illiquidity.