In recent years, the return on risk-free investments has been close to inflation, which has barely kept the real value of these investments.
It is therefore no longer possible to grow capital with risk-free investments. If you want to increase the real value of your assets, you have to accept a dose of risk.
If you decide to take risks to improve the performance of your life insurance policy, you must nevertheless understand that if risk and return are linked (the return is the reward for risk), this link is not univocal.
Risk is a condition of performance but it is not a guarantee of performance. Your risk taking must be controlled because otherwise, it is very likely that it leads to a result opposite to the desired objective.
How to control your risk taking? One solution is to use the services of a professional. If you prefer to manage your investments alone, you should at least follow these 3 recommendations.
Most of the time, novice investors only consider returns and do not care about risk. Many of them invest in "dynamic" shares or UCIs and desert the financial markets after each major crisis, swearing that they will not be taken over. Attracted by tempting yields, they were not ready to assume the corresponding risks.
Once yield and risk are linked, you cannot just look for the highest return. You must also consider the risks you are willing to take. If you have to look for the maximum return, it is within the framework of the risks that you can tolerate.
If you take too much risk, you will find yourself sooner or later in an unbearable situation, with latent (or actual) losses that exceed what you can bear. It's a safe bet that you will refuse any new risk taking in the future.
When building your portfolio, it is imperative that it is consistent with your investment horizon and risk sensitivity.
You will not choose the same investments depending on whether your horizon is 2, 5 or 20 years old. While it is not appropriate to invest in short-term risky investments, it is not appropriate to invest in risk-free long-term investments. While you risk a severe capital loss in the first case, you deprive yourself of an extra yield in the second. But over a long investment horizon, a yield gap (even limited) can have significant consequences. For example, savings of 200 dollars per month paid at 1.5% for 15 years can accumulate a capital of 40,000 dollars. This capital exceeds 50,000 dollars if the yield is 5%.
On the other hand, we do not all consider risk in the same way. Danger for some, it is an opportunity for others. While the loss of part of the committed capital is intolerable for the most risk-averse, it is an acceptable counterpart to higher returns for others.
Before investing in risky media, it is therefore essential to know your risk profile to build a portfolio that will fit you.
Once your target allocation is defined (the portfolio that maximizes returns while respecting your risk sensitivity), you will have to invest gradually and not invest all of your capital according to this target allocation.
The media on which you will invest are volatile and experience short-medium term fluctuations. As it is difficult to predict these fluctuations, investing gradually (at regular intervals) allows you to limit the impact: you invest at an "average" price.
Investing at regular intervals is therefore recommended to investors who doubt to invest at the best time and fear to invest at worst. By smoothing the average purchase price, they avoid buying at the highest.
While a gradual investment is recommended to purchase units of account, a gradual disinvestment is also desirable when you approach the end of your investment horizon. You will have to start gradually giving up your risky media a few years before this term and switch them to a risk-free support (funds in dollars). This will limit the impact of any significant market decline.