How to invest in the stock market with a PEA

Investing in the stock market with a PEA is very popular with savers. Thanks to its advantageous taxation on capital gains and dividends received, it boosts investment performance while reducing the tax bill. The PEA also offers the possibility of diversifying one's savings between many vehicles such as shares, ETFs, funds, warrants, etc.

But to take full advantage of its PEA, it is still necessary to understand how it works and implement an appropriate investment strategy.

• ✔️What are the eligible supports?
• 👉 How to take advantage of each type of asset?
• ✔️ Which allocation to adopt between live shares, ETFs and funds?

So many questions that we will answer in this article to allow you to optimize your PEA. Thanks to this valuable advice, you will know how to build an efficient and resilient PEA portfolio, capable of boosting your stock market returns in the long term while controlling risks. Prepare to become an ace of PEA management! But before we begin, here is how to get out of debt? Let's go !!

What is a PEA?

The PEA (The Share Savings Plan) is a share savings plan for individual investors. It allows you to invest in shares of European companies, but also in units of certain UCITS (Undertakings for Collective Investment in Transferable Securities) such as SICAVs (Variable Capital Investment Companies) and FCPs (Mutual Funds). Here are some important details to know about the PEA:

Avantages fiscaux: Capital gains made on securities held in a PEA are exempt from income tax, provided that a minimum holding period of 5 years is respected. In addition, dividends received are subject to a single flat-rate deduction (PFU) of 30%, including income tax and social security contributions.

Payment limits : The PEA is subject to payment ceilings. Currently, the ceiling is set at 150 euros for an individual PEA and at 000 euros for a joint PEA. It is important to note that payments made to a PEA cannot be recovered once the ceiling has been reached.

Minimum detention period: To benefit from the capital gains tax exemption, it is necessary to keep the securities in the PEA for at least 5 years. If you make a withdrawal before this period, you will be subject to taxation of the capital gains made.

Transfer of the PEA: It is possible to transfer your PEA from one bank to another, while retaining your tax seniority. However, it is important to respect certain rules and to pay attention to possible fees related to this transfer.

Use of cash: The amounts available in a PEA can be used to make new investments or to make partial withdrawals. However, it is important to keep in mind that any withdrawal made before the minimum holding period will result in the closure of the PEA and the taxation of the capital gains made.

Who can open a PEA?

The PEA can be opened by any adult natural person. Minors can also open a PEA, but with the agreement of their legal representative. It is important to note that each person can only hold one PEA, whether individual or joint. Furthermore, it is not possible to open a PEA in the name of a company or legal entity.

To open a PEA, it is necessary to provide certain supporting documents, such as a valid ID and recent proof of address. It is also possible that the bank or online broker will ask for additional information about the investor, such as their professional situation and income. Finally, it is important to note that the PEA is subject to payment ceilings, set at 150 000 euros for an individual PEA and 300 euros for a joint PEA.

The opening of a PEA is quick and easy. To open a PEA, you must first choose a financial institution authorized to offer this savings product. This may be a traditional bank or an online broker. Then, you must contact this institution and provide the supporting documents necessary for opening the PEA, such as a valid ID and recent proof of address.

It is also possible that the bank or online broker will ask for additional information about your professional situation and income. Once all the supporting documents have been provided, the financial institution will proceed with opening the PEA.

In a PEA, it is possible to invest in shares of European companies listed on a regulated market, as well as in certain UCITS such as SICAVs and FCPsShares eligible for the PEA must meet certain criteria, such as being issued by companies with their head office in the European Union or in a member state of the European Economic Area.

In addition, shares must be listed on a regulated market, such as Euronext Paris or the London Stock Exchange. It is important to note that certain financial products are not eligible for the PEA, such as warrants, certificates and bonds convertible into shares. In addition, it is prohibited to use the sums invested in the PEA as collateral for a loan or credit transaction.

How to manage your PEA over time?

Managing your Equity Savings Plan (PEA) over time requires patience and a well-thought-out strategy. Here are some tips to optimize your PEA over the long term:

First of all, it is important to diversify your investments. Don't put all your eggs in one basket. Spread your capital across different sectors and geographic areas to balance risks. Adopt a long-term vision. The PEA is particularly interesting from a tax point of view after 5 years of holding. So try to keep your positions for several years, or even decades, to take full advantage of market growth and the tax advantage.

Make regular payments. Rather than investing a large sum at once, opt for monthly or quarterly contributions. This method, called "dollar cost averaging", allows you to smooth out market fluctuations and reduce the risk of bad timing. Don't hesitate to rebalance your portfolio periodically. Once a year, for example, adjust your positions to maintain your initial asset allocation. This will force you to sell part of what has performed the best in order to buy what is temporarily down.

Finally, stay informed but don't panic during market declines. These periods can, on the contrary, be opportunities to strengthen your positions at a low cost.

What investment strategy should you adopt in your PEA?

There are several options available to you for investing in your PEA. Here are some typical strategies:

Live action

Live actions, also called individual actions, are a key element of many PEAs. Choose your actions carefully. Focus on companies whose business model you understand and have strong fundamentals. Analyze their financial statements, market position and growth prospects.

Diversify your stock portfolio. Avoid putting too much money into any one company or industry. A good rule of thumb is to invest no more than 5% of your portfolio in any one stock. Stay up-to-date on your companies' news. Stay informed about quarterly earnings, management changes, and industry developments that could affect your investments.

Keep a long-term perspective. Stock prices fluctuate in the short term, but over the long term, they tend to reflect the growth and profitability of the company. Consider dividends. Dividend-paying stocks can provide regular income and help your portfolio grow, especially if you reinvest them.

Don't be afraid to take profits. If a stock has risen sharply and is now too large a portion of your portfolio, consider selling some of it to rebalance.

Risky securities (small caps, biotechs, etc.)

Risky stocks like small caps or biotechs can offer high growth potential, but with increased risk. Limit your exposure. These stocks should only represent a small portion of your portfolio, typically 5% to 15% maximum depending on your risk profile. Diversify within this category. Don’t put all your money on one company. Spread your investments across multiple stocks to reduce specific risk.

Do your research. Since these companies are less widely followed by analysts, it is crucial to understand their business, market, and outlook before investing. Be prepared for volatility. The prices of these securities may vary significantly. Keep your cool and a long-term view. Use limit orders. Due to their low liquidity, the spreads between buy and sell prices can be large. Limit orders protect you from executions at unfavorable prices.

Follow the news closely. For biotechs, for example, pay attention to announcements about clinical trials or regulatory authorizations that can have a strong impact on the price. Take your profits. If one of these stocks performs exceptionally well, don't hesitate to sell a portion to lock in your gains and rebalance your portfolio.

Equity funds

Equity funds are an important element in many PEAs. Understand the different types. There are active funds (managed by professionals) and passive funds (which track an index). Each has its advantages and disadvantages in terms of potential performance and costs. Review the fees. Management fees can significantly impact your long-term return. Compare them between different funds, especially for index funds where performance differences are generally small.

Study the fund's strategy. Read the KIID (Key Investor Information Document) carefully to understand the fund's objective, investment policy and risk level. Diversify geographically and by sector. Choose funds that invest in different regions of the world and different sectors of activity to spread the risks.

Consider your investment horizon. Some funds are more suited to long-term investment, others may be suitable for medium-term goals. Track performance. Regularly compare your funds' performance with their benchmark, but keep a long-term perspective. Rebalance periodically. If some funds significantly outperform, don't hesitate to sell a portion to return to your target allocation.

ETFs (Exchange-Traded Funds)

ETFs, or trackers, have become very popular in PEAs. Low costs. ETFs generally have very low management fees compared to active funds, which can significantly improve your long-term returns. Instant diversification. A single ETF can give you exposure to hundreds of stocks, offering excellent diversification at a lower cost.

Transparency. The composition of an ETF is usually published daily, allowing you to know exactly where your money is invested. Liquidity. ETFs trade like stocks, offering great flexibility to buy or sell quickly. Variety of choice. There are ETFs for almost every market, sector or strategy, allowing you to build a highly diversified portfolio.

Beware of tracking error. Check that the ETF is tracking its benchmark index. A large gap may indicate inefficient management. Consider trading volume. Thinly traded ETFs may have large gaps between buy and sell prices, impacting your performance. Dividend reinvestment. Some ETFs automatically reinvest dividends ("capitalizing" ETFs), others distribute them ("distributing" ETFs). Choose according to your strategy.

Which sectors should you prioritize in your PEA?

Choosing which sectors to focus on in a PEA depends on several factors, including your investment objectives, risk tolerance, and time horizon. Here are some sectors that can be considered, but keep in mind that diversification remains essential to reduce sector-specific risks:

Technology: Technology companies can offer significant growth potential. However, the industry is often volatile, and it is important to monitor emerging technology trends and the performance of individual companies.

Health and biotechnology: With the aging population, the healthcare and biotechnology sector may present growth opportunities. However, it is crucial to understand pharmaceutical and biotechnology product development cycles, as well as industry regulations.

Renewable energies: Investments in renewable energy are becoming increasingly popular due to the shift to more sustainable energy sources. Companies engaged in solar, wind, and other clean energy sources could benefit from long-term trends.

Discretionary consumption: This sector encompasses non-essential goods and services, such as travel, leisure and fashion. It can be sensitive to economic fluctuations, but discretionary consumption can also benefit from periods of economic growth.

Finance and banks: The financial sector, including banking, insurance and financial services, may be influenced by overall economic conditions. Performance may be closely related to interest rates and economic policies.

What individual actions should be included in your PEA?

Choosing which individual stocks to include in a PEA depends on a variety of factors, including your investment goals, time horizon, risk tolerance, and personal market analysis. Here are some general considerations and some examples of companies you might consider.

French blue chips: Large French companies, often called "blue chip", are generally considered more stable investments due to their size and market position. This can include CAC 40 companies such as L'Oréal, TotalEnergies, Sanofi, etc.

Technology: Global technology companies can offer significant growth potential. For example, companies like Dassault Systèmes, Capgemini or STMicroelectronics are important players in the technology field.

Health and biotechnology: Healthcare companies can be included to diversify your portfolio. Sanofi, EssilorLuxottica or Thales may be options to consider.

Renewable energies: If you are interested in renewable energy, companies such as TotalEnergies, Engie, or Orsted (if you accept foreign stocks) could be included in your portfolio.

Consumer goods : Companies that provide consumer staples, such as L'Oréal, Danone, or LVMH, can be considered for the stability they bring to a portfolio.

Industry: Industrial companies such as Airbus, Safran or Vinci can be included to participate in economic growth and infrastructure projects. It is important to note that diversification is crucial to mitigate company or sector specific risks.

Which ETFs to choose as part of a PEA?

The choice of Exchange-Traded Funds (ETFs) for a Share Savings Plan (PEA) depends on your investment strategy, financial goals and risk tolerance. ETFs are exchange-traded index funds that track the performance of an underlying index. Here are some ETFs that could be considered for a PEA, with a focus on indices linked to the French or European market:

Lyxor CAC 40 (LYX0PA): This ETF replicates the performance of the CAC 40, the flagship index of the Paris Stock Exchange, which brings together the 40 largest French companies.

Amundi MSCI Europe UCITS ETF (CEUD): This ETF tracks the MSCI Europe index, providing exposure to a broad range of European companies, including French ones.

iShares EURO STOXX 50 UCITS ETF (C50): This ETF tracks the EURO STOXX 50 index, composed of the 50 largest companies in the Eurozone. It offers geographic diversification.

Lyxor MSCI EMU Small Cap UCITS ETF (MMS): If you are interested in Eurozone small caps, this ETF tracks the MSCI EMU Small Cap Index.

Amundi Index MSCI Europe SRI UCITS ETF (EUR): For investors interested in environmental, social and governance (ESG) criteria, this ETF tracks the MSCI Europe SRI Index.

BNP Paribas Easy STOXX Europe 600 UCITS ETF (EXSA): This ETF tracks the STOXX Europe 600 index, which includes companies from several European countries.

Lyxor MSCI World UCITS ETF (WLDR): For global exposure, this ETF tracks the MSCI World Index, encompassing companies from developed markets globally.

Before choosing an ETF, make sure you understand the underlying index tracking methodology, associated fees, and fund composition. Also, keep in mind that diversification is still important, even with ETFs. It is always recommended to do thorough research or consult a financial advisor before making any investment decisions.

The risks of investing in the stock market

Investing in the stock market comes with growth opportunities, but it is also important to understand and manage the associated risks. Here are some of the main risks investors should consider:

Market risk: Financial markets are subject to volatility. Stock prices can fluctuate due to a variety of factors, such as economic conditions, political events, interest rates, and even market sentiment. Investors may suffer losses if the market in which they invest experiences significant declines.

Financial risk: Some companies may experience financial difficulties, and investors may suffer losses if a company they have invested in goes bankrupt. It is essential to understand the financial strength of companies before investing.

Sector risk: Stock performance can be influenced by sector-specific factors. For example, technology companies may be affected by rapid technological advancements, while energy companies may be sensitive to fluctuations in commodity prices.

Company specific risk: Every business has its own specific risks, such as management issues, legal disputes, scandals, etc. It is important to understand these specific risks before investing in a business.

Risk of change : If you invest in foreign stocks or funds, changes in exchange rates may affect the value of your investments when converted into your local currency.

Liquidity risk: Some assets may lack liquidity, meaning it may be difficult to sell them quickly without affecting their price. This can be a problem, especially for investors who need short-term cash.

When can you withdraw your earnings from a PEA?

To continue to benefit from the PEA tax advantage, you must keep it open for at least 5 years from the first payment. After this deadline, you can withdraw your earnings whenever you want. They will be exempt from income tax (excluding social security contributions).

Closure of the PEA before 5 years: When you decide to close your Share Savings Plan (PEA) before the fifth anniversary of its opening, the gains generated are subject to income tax, in addition to social security contributions. This situation may result in higher taxation compared to a PEA closed after 5 years.

After 5 years: Once your PEA has exceeded the five-year period, the gains made benefit from an income tax exemption. However, social security contributions continue to apply. It is crucial to note that any withdrawal before the eighth anniversary of the opening of the PEA results in the closure of the account.

Between 5 and 8 years old: If you choose to make withdrawals between years five and eight, the earnings are exempt from income tax, but social security contributions remain in effect. After eight years, earnings and withdrawals are completely exempt from income tax and social security contributions.

Partial or total withdrawals: You have the freedom to withdraw part or all of your capital and earnings at any time. Partial withdrawals do not necessarily compromise the tax benefits of the PEA, as long as the account is not closed.

Specific conditions for exempt winnings: In order to benefit from the tax exemption on gains after 5 years, it is imperative to keep the PEA open and active. Closing the PEA before the fifth anniversary results in taxation of gains.

Transfer of the PEA: It is possible to transfer your PEA from one bank to another while preserving the tax benefits, provided that you follow certain rules and procedures. A financial professional can provide advice specific to your situation to optimize your gains while respecting the tax rules in force.

Can the PEA be transmitted to his heirs?

The PEA benefits from a regime of advantageous succession. In the event of the death of its holder, the PEA is automatically transmitted to the surviving spouse. He retains his tax precedence and can continue to benefit from it. If the holder was single, the PEA is closed and treturned to designated heirs. But there is no inheritance tax, thanks to the income tax exemption. Only the social contributions are due.

Investing in the stock market as a Muslim

Investing in the stock market involves buy assets such as stocks, bonds or other financial assets in the goal of generating long-term profits. By owning shares in a company, you become a shareholder and are entitled to a portion of the profits in the form of dividends. You are also betting on the increase in the value of the stock upon resale. It's that simple.

The major stock markets as the NASDAQ or the CAC 40 allow you to invest in hundreds of publicly traded companies. You can buy shares directly or through mutual funds.

The rules of Islamic finance

Investing in the stock market as a Muslim means respecting the Sharia. In fact, Islamic finance is based on the principles of Sharia. The Muslim investor must imperatively respect these rules in the choice of his investments. Certain common practices in conventional finance are prohibited:

✔️ The riba

The riba is one of the fundamental prohibitions in Islamic finance. According to the sacred texts of the Quran, any form of interest or usury is strictly prohibited for Muslims. The term riba refers to any income, gain or rent obtained from a loan of money, in return for the time elapsed. Concretely, this includes interest earned on a savings account, interest paid on a bank loan, but also compound interest which increases over time.

Classic bonds, which earn fixed interest coupons, are thus prohibited for a practicing Muslim. Only Sharia-compliant Islamic bonds (sukuk) are permitted, as they do not pay illicit interest. Likewise, it is prohibited to invest in conventional financial institutions that make loans with interest. Banks, insurance companies and credit bureaus are to be avoided.

✔️ The gharar

If you want to invest in the stock market, you will need to avoid gharar. The gharar designates excessive uncertainty and randomness in financial transactions. In Islamic finance, gharar is prohibited because it introduces injustice and speculation. More precisely, gharar covers different notions:

• Information asymmetry between the parties to a contract
• The ambiguity of the terms of the contract
• Uncertainty about the very existence of the object of the contract
• Risky and unreasonable speculation

To comply with the prohibition of gharar, Islamic financial contracts must be perfectly transparent, understandable by all parties, and relate to real and identified assets. Concerning investment in the stock market, the concept of gharar therefore encourages invest responsibly by avoiding excessive risk-taking. It also encourages people to prefer the real economy to financial speculation.

✔️ Illicit investments

You will also need to think about tangible assets if you want to invest in the stock market. Islamic finance strictly prohibits investments in certain sectors of activity deemed illegal and unethical. Scriptural sources clearly prohibit areas related to alcohol, gambling, pornography, or even speculative finance professions.

Concretely, it is prohibited for a muslim investing in companies related to the production or distribution of alcoholic beverages. Beer, wine and spirits manufacturers are to be avoided. Casinos and other gambling and betting establishments are also to be avoided. The same applies to adult entertainment industries, such as the production of pornographic films, which are considered haram. The same applies to the arms industry, especially controversial weapons.

✔️ The speculation

The speculation unrestrained is prohibited in Islamic finance because it is considered a forbidden game of chance (maysir). Indeed, carrying out financial transactions solely with the aim of profiting from very short-term price fluctuations is seen as a risky and immoral bet. This type of pure speculation is assimilated to gambling, and does not participate in the real economy. Religious texts condemn these practices of exclusive and disproportionate pursuit of profit.

They advocate a sound and ethical investment, where the investor truly shares the risks and participates in the creation of value. Thus, to be lawful, an investment in the stock market must be a responsible investment over the long term, and not a succession of risky bets unrelated to the company's activity.

Which preferred assets?

Not all companies and sectors are allowed for the Muslim investor. Investing in the stock market is therefore regulated. To invest in the stock market while respecting the principles of Islamic finance, certain assets are to be favored by the Muslim.

First of all, opt for stocks having low debt and generating a minority share of their income via interest. Also filter prohibited sectors (alcohol, tobacco, etc.). You can also turn to sukuks, the Islamic equivalent of bonds, backed by tangible assets and real cash flows rather than pure financial interest.

Finally, for more ease, head towards exchange traded funds replicating Islamic stock indices. The filtering of non-Sharia-compliant securities is already done. With these guidelines, you will invest in the stock market with peace of mind and in full accordance with your religious principles. Investing in real estate to earn rent is permitted. Be careful though loans with interest. Real estate investment is therefore a good way to invest in the stock market as a Muslim.

Islamic stock indices

These indices based on ethical and moral filters are meeting growing interest from investors, Muslims but also non-Muslims, seduced by this more virtuous finance. Concretely, the filtering methodology for composing these indices varies but is generally based on sectoral exclusion and financial ratios.

Sectoral exclusion allows companies involved in illicit activities (gambling, alcohol, tobacco, etc.) or deemed harmful to society (armaments) to be immediately removed. Financial ratios measure the level of debt and the share of income from financial interests. Companies with excessive debt or income mainly from interest are also excluded. Thanks to this double filtering, Islamic indices replicate the performance of global markets by mimicking their composition, but without elements incompatible with Islamic investment ethics.

Choosing a Halal Online Broker

To trade stocks in accordance with the principles of Islamic finance, it is recommended for a Muslim to go through an online broker labeled "halal". Such status certifies that the broker offers accounts and services that comply with the precepts of Sharia: no transactions involving riba (interest), exclusion of haram (non-compliant) companies...

For example, the online broker Dubai First offers certified Islamic investment accounts with screening of financial securities according to ethical extra-financial criteria. Its certification also implies an annual donation policy in accordance with zakat and other verifications. The advantage of such a specialized broker is to simplify investment stock market of a Muslim individual thanks to a pre-selection of securities compatible with his religious morality. A significant comfort to concentrate serenely on the management of his positions in shares!

To invest in the stock market directly, you will need to go through an online brokerage platform. Some are more respectful of Islamic principles:

• Wahed Invest : leading online broker offering pre-built halal ETF portfolios.
• Yields : halal investment in stocks and real estate without riba.
• IFDC : platform that certifies the Sharia compliance of the products offered.

Make sure you choose a broker that is reliable, transparent, and only offers legal investments.

Cryptocurrencies

The relationship between cryptocurrency and Islamic finance can also be viewed through the lens of exchange. Cryptocurrency functions as a medium of exchange across the world. This means that it can operate in legally diverse and unpredictable environments, often making it more accessible than traditional financial options.

Although vulnerable to market changes, crypto coins such as Bitcoin and Ethereum are considered a legitimate medium of exchange. They are available for use in transactions and trading.

The development of Sharia-compliant cryptocurrency guidelines provides Muslims with the opportunity for ethical investments. From a financial perspective, Islamic charities could benefit immensely from Zakat and other donations through crypto investment and trading. Many banks and financial institutions around the world recognize crypto as a financially viable medium of exchange. This makes it easier for investors to continue trading, buying, and selling cryptocurrency.

As to whether contracts relating to crypto are sharia compliant, since contractual relationships in crypto are based on smart contracts using blockchain technology, this means that the process can be made more and more more secure and automated. This not only reduces administrative complexities, confusion and errors. Participatory and sharing-based cryptocurrencies have a project that is more in line with Islamic ethics.

Zakat and investment

Zakat is the obligatory alms in Islam. It generally amounts to 2.5% of income and savings. Most scholars agree that zakat also applies to investments.

This rule of purification also applies to profits generated by financial investments. Some ulama even recommend paying zakat on each significant capital gain made following the sale of a share, without waiting for the annual deadline. Paying this religious tax allows one to sanctify one's financial capital, to purge it of its sometimes selfish and speculative character. Zakat embodies an act of sharing and solidarity towards the weakest.

Fatwas on investing in the stock market

Investing in financial markets and the stock market raises questions for a Muslim wishing to align his investments with the principles of Islamic finance. Also, many ulama have spoken on the subject through various fatwas. While some scholars are very reserved towards the stock market and its speculative deviations potential, the majority see it as a legal economic activity under certain conditions. Thus, the European Council of Fatwa and Research considers investment in stocks to be generally halal.

Among the main recommendations issued in these fatwas, we find the need to choose an ethical company, the filtering of illicit sectors (alcohol, weapons, etc.), the exclusion of mechanisms based on usurious interest, or the obligation to collect zakat on dividends and profits. If these precautions are respected, investment in the stock market can therefore be validated and encouraged. Some even see it as a way to boost the real economy and introduce more morality thanks to the influence of Muslim investors. Participation in general meetings and shareholder votes is also recommended.

Conclusion

In conclusion, investing in the stock market with a Stock Savings Plan (PEA) offers a captivating opportunity to access financial markets while benefiting from significant tax advantages. However, this adventure requires a thoughtful approach and a thorough understanding of the mechanisms of the PEA.

We've explored the diversity of choices available, from individual stocks to ETFs, highlighting investment strategies and inherent risks. The key lies in the definition of investment objectives clear, portfolio diversification to mitigate risks, and prudent management of the PEA over time.

Let us not forget the importance of patience and discipline in investing. By maintaining a long-term perspective, regularly monitoring their portfolio and strategically adjusting their positions, the investor can maximize the chances of success while taking advantage of the tax benefits of the PEA.