In a constantly changing economic environment, marked by interest rate fluctuations, inflation that remains under scrutiny and uncertainties on the financial markets, the question of optimising savings is more topical than ever. “Over the last two years, our customers have tended to increase their money-market investments, which have been made very competitive by the rise in interest rates, compared with other fixed-rate investments. Today, with the prospect of falling rates in Europe, we believe it is time to redeploy some of this cash in a more optimal way towards longer-term solutions,” says the head of the BGL BNP Paribas Banque Privée offering, Anne-Françoise Woolf.

Traditionally liquid savings, but that’s changing

Generally speaking, people in Luxembourg have always shown a preference for cash or highly liquid investments. “There are several reasons for this. First, we have a rather generous pension system, which does not encourage people to take risks or to put their savings to work. As a corollary, there has been relatively little interest in financial education to familiarise people with other investment tools,” notes Claude Hirtzig, head of the retail & professional banking department at Spuerkeess. “In the context of the pension reform currently under discussion, it is important to question this behaviour. We are also seeing a gradual change, particularly with the arrival of new residents who are more familiar with the financial markets and come from countries where it is important to build up capital for retirement.”

Today, a growing proportion of the population is interested in long-term investment and pension provision. “One of the major concerns of young people coming to work in Luxembourg--in terms of banking needs--is not property financing, but rather investment, long-term savings and provident provision. We are seeing a very clear change in mentality. Previously, residents built up savings to cover short-term expenses and, above all, to finance the purchase of their first property. Now, the possibility of becoming a homeowner is receding for many customers, who are therefore prepared to take a small risk with their cash reserves,” continues Hirtzig.

Since the latest round of rate hikes initiated by the European Central Bank (ECB), starting from July 2022, banks have seen a very clear revival of interest in term deposits, which have captured a significant proportion of savings. “Discussing term deposits with our customers also allows us to talk about other solutions, such as securities investments, and to familiarise them with these subjects,” adds Hirtzig. “What’s more, now that interest rates are falling again, these same customers are migrating their assets from term deposits to diversified investment funds, even though these positions remain very conservative.”

Solutions tailored to every investor profile

For those who want to start investing, accessible solutions exist. “A regular securities investment plan can be set up for as little as €40 or €50 a month,” explains Hirtzig. “This allows you to familiarise yourself with the markets without taking excessive risks. Starting with small amounts is often reassuring, and it gives you a better understanding of how investing works over the long term.”

Digital tools also make it easier to access investments. “Today, a simple smartphone is all you need to get started thanks to roboadvisors,” he adds. “These automated solutions carry out profiling and recommend an ideal allocation according to a client’s objectives. The aim is to make investing accessible to everyone, without requiring advanced financial knowledge.” For retail customers who want more in-depth support, Spuerkeess offers a discretionary management solution, available from €25,000. “This approach gives investors access to professional management without having to monitor market trends on a daily basis. Once a client’s profile has been established, our experts take care of allocating their capital and adjusting investments according to market conditions, thereby guaranteeing an optimised allocation tailored to their financial objectives."

Towards an optimised allocation: diversification and projection

Today, financial savings advice is at the heart of the relationship between a customer and their bank. “Any investment advice or portfolio construction must be adapted to each customer's own plans, appetite for risk, expectations of return, understanding of financial matters, personal convictions and, increasingly, the desire to save and invest responsibly,” says Woolf, for whom building an effective portfolio is based on a structured and balanced approach. “At the outset, investing for the long term requires you to project your needs, in order to determine the proportion that will have to cover cash requirements and the proportion that will cover the need for returns for capital growth.”

Then, the novice investor must build his or her portfolio by starting with the foundations, a solid base that aims for a stable return. “To this base, we will add layers of opportunities depending on market trends and the client's preferences. We may invest in bonds, equities, structured products and, on a case-by-case basis, move towards more sophisticated investments such as private equity, infrastructure or unlisted property,” explains Woolf.

Strategic allocation, which consists of defining the weight of the different asset classes in a portfolio from a long-term perspective (five to 10 years), while taking account of the client’s risk profile and plans, is the first stage in the process. “This strategic allocation alone accounts for 77% of the performance achieved. The other factors that come into play are fund selection (10%), investment timing (7%) and tactical allocation (6%),” explains the head of the BGL BNP Paribas Banque Privée offering. “Tactical allocation, as opposed to strategic allocation, is a shorter-term portfolio management choice. The aim is to take advantage of a period of outperformance in an asset class over a time horizon that is generally six to 12 months.”

Desire to simplify solutions

In discretionary management, in addition to strategic allocation, the manager is responsible for all stages of tactical allocation, choice of investment vehicles, market timing and risk management. “This is a turnkey solution. On the other hand, if customers do not wish to completely delegate the management of their investments, they can, via advisory management, obtain advice and recommendations for building and managing their financial portfolio,” emphasises Woolf.

Today, the aim is to simplify investment. “Our starting point is that customers don’t wake up every morning wanting to buy a banking product. Our ambitions are high and we think that the retirement savings aspect is going to become very important in the future, but our role is first and foremost to keep our customers well informed so that they are able to make the right decisions,” says Hirtzig.

For both the small saver and the more affluent client, the main criterion is not when to invest, but the pace of investment. “We’re coming off an excellent year and investors may say to themselves that they need to invest more or, conversely, that they want to sell because the favourable situation won’t last. That’s when you need to talk to your advisor. You should also redefine your risk profile at regular intervals or when your financial situation changes, either positively or negatively,” he adds.

Investing may seem complex, but there are solutions to simplify this first step, which then opens up the field of possibilities.

2.75%

In January 2025, the European Central Bank (ECB) after four cuts in 2024, bringing its deposit rate down to 2.75%. Further cuts are likely to follow, even though the US Federal Reserve's choice was to take a pause.

Big trends for 2025

Robotic advice, from €500

The Speedinvest investment solution from Spuerkeess is based on advice from a roboadvisor. “The solution is designed to be very simple. In ten or so clicks, the robot determines the customer’s investor profile, who then chooses the amount he or she wishes to invest, starting at €500,” explains Hirtzig. Depending on the strategy chosen, the money will be invested in two sub-funds of investment funds, of the bond and equity type, made up mainly of exchange-traded funds (ETFs), which in turn invest in a diversified manner in international stock markets, as well as in bonds denominated in euros and dollars. “This solution is a fun way of taking the first step. You see your investment fluctuate directly, in line with the markets.”

Which strategy?

“For 2025, our experts have identified several strategic priorities,” explains Woolf. “First, we recommend betting on the fall in key rates, which should support leveraged asset classes such as infrastructure and private equity. The rise in long-term rates since last December is an opportunity to invest in investment-grade bonds or structured products with capital protection.” The head of the BGL BNP Paribas Banque Privée offering also advises investing in technology and energy infrastructure and all the sectors that contribute to their operation, as well as diversifying portfolios with de-correlated products to avoid concentration on large US technology stocks. “We also need to monetise artificial intelligence by investing in technology and industrial companies. Finally, the question of ageing well has become a social issue. Investing in the pharmaceutical, biotechnology and medical technology sectors is part of this approach.”

86%

According to the ABBL’s Annual Retail Banking Market Study 2022, local customers--in general--remain very conservative, with current accounts, savings accounts and term accounts still accounting for 86% of deposits.

This article was written in  for the  to the  magazine, published on 26 February. The content of the magazine is produced exclusively for the magazine. It is published on the website as a contribution to the complete Paperjam archive. .

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