Bernard-Marie, reader of Capital, asks us the following question: “I would like to have information on ETFs. Is it easy to subscribe and how? I’m a newbie, I don’t know anything about it and I’d like to get started. How should I go about it and which ETFs should I choose? In addition, is it necessary to subscribe to a PEA? Is it tax-free?”
Hello Bernard-Marie, and thank you for your many questions, which will allow us to repeat the essential things to know about ETFs for beginner investors. First, you are right to be interested, because ETFs can be a good starting point for getting started on the stock market. To answer you, yes, it is quite easy to subscribe to it. The real difficulty lies rather in the choice of savings product, and in the selection of ETFs.
Subscribing to an ETF: a simple process via a securities account or a PEA
An ETF (index fund, or tracker) is a financial product that replicates the performance of another asset: this can be gold, oil, or, more commonly, a stock market index, such as the CAC 40, the S&P 500, or even the MSCI World, which brings together the largest companies on the planet. An ETF is bought and sold on the stock market like a stock. To subscribe to this product, you must go through an investment envelope managed by your bank or an online broker.
There are two main options available to you. On the one hand, you can opt for the ordinary securities account (CTO), which is the simplest envelope, and which will open up the largest catalog of ETFs to you. You can withdraw the money invested whenever you want (during stock market opening hours), and capital gains are subject to the single flat tax (PFU) at 30% (12.8% income tax plus 17.2% social security contributions).
Second solution, you can choose, as you mention, the stock savings plan (PEA). The latter is not mandatory to invest in ETFs, but it can be more tax advantageous. Its main advantage is that it allows total tax exemption on capital gains and dividends. This exemption is conditional on no withdrawal for five years. After this period, only the 17.2% social security contributions will remain due. To get started, the same: you can open a PEA with a bank or an online broker.
How to choose your first ETFs: favor simplicity and diversification
All that remains is to choose your ETF to place in your securities account or your PEA. For a novice, the choice may seem vast. However, a few ETFs can be enough to diversify your portfolio, which is the first tip to give to beginners. For your first steps, you can focus on ETFs that track major global indices, for example the MSCI World Index.
The latter brings together the shares of more than 1,500 large companies in 23 developed countries, thus offering maximum diversification across the entire global economy. Another popular choice is the ETF tracking the S&P 500 index, which tracks the 500 largest American companies (Apple, Google, Microsoft, etc.) and which has demonstrated its long-term performance.
Please note, however, that the PEA is an investment product dedicated to French and European equities. In principle, therefore, it is impossible to bet on global or American ETFs. However, certain ETF issuers have recently managed to make MSCI World trackers, on the S&P 500, or even on emerging country indices eligible for PEA. The ETF catalog will, however, remain less extensive than with a securities account.
In summary Bernard-Marie, it is very easy to invest in ETFs by opening an account with an online broker. The PEA is not compulsory, but it is the best option to benefit from a tax advantage on capital gains after five years of holding. To choose your first investment, you can choose an ETF such as MSCI World for global diversification of your investment. Finally, do not hesitate to regularly invest small amounts to smooth out the impact of stock market variations.
