Investing is a bit like fishing.
Let me explain:
When you first start, you’ll need to do some experimenting: try different rods, find the right location, learn how to reel fish in and possibly lose some on the way.
Once you do get the hang of it, however, you’ll catch plenty of fish and your icebox will be nice and full (and ready for dinner).
As a new investor, you’ll also start off with some experimenting. You might have to try various investment assets before picking one that suits you best, and you might even make some investing mistakes.
Some of these mistakes are common among beginners.
In fact, there so common that we wanted to put them together with the goal of helping you avoid them.
So, here they are – 5 of the most common investing mistakes.
5 investing mistakes you need to avoid
Ready? Let’s dive in
1. Not starting
Most people that want to invest, don’t.
It’s either because of the lack of confidence, a lack of knowledge or fear of the risk that comes with investing. But the honest truth is that with interest rates at 0.01% – and some even negative in certain countries – the only way to grow your savings passively is with investing.
Investors procrastinate and promise themselves they’ll do it later. This is normal and understandable, but it’s also a common mistake. Before you know it, 5 years have passed, and you still haven’t invested!
One of the best ways of overcoming this “investment procrastination” is to begin with very small amounts of money. Start with just €10 and see how it feels.
There’s never a “right time” to invest, but the sooner you start, the more time you have to make your money work for you, allowing compound interest to do its magic.
2. Not investing regularly
Here’s 2 common strategies that most investors make:
- Only investing when you feel like it
- Only investing when you have cash “left over” from monthly expenses
Although it “technically” counts as investing, it’s not a sustainable way to invest.
Without an investing plan, it’ll be harder to forecast your returns, plan for the future and reach your goals. It also leads to your investment returns being lower – investing sporadically means you won’t be contributing as much over time.
This is why as a beginner investor, making investments every month from the get-go is a great way to turn it into a successful habit. With accessible P2P platforms like Swaper, you can get started for as little as €10 – so don’t let minimum contributions stop you.
If you can only invest €10, start with €10. Simple, right?
Once investing becomes a natural habit, that’s when you’ll notice a real difference and that’s when you’ll start to see your investments produce returns.
3. No time horizon
Although you want to turn investing into a habit, it’s also important to have a time horizon for your investments. That means, essentially, having long term goals you want to keep in mind.
Note that these goals must be long term – if you only invest for one year, you’ll be disappointed with the results: 14% on a €10 investment is only €1.40 – not exactly the solution to helping you retire early.
And that’s exactly why we’re listing short-term investing as a common investing mistake.
Compare that with the below:
If you invest €100 every year for 10 years with a 14% return, you’ll suddenly have more than €2,000. With that investment, you’ve gone from an extra cup of coffee to a free all-expenses paid holiday!
Having a long-term goal will help you calculate what you should be investing every month, as well as help you decide on the investment assets.
If you’re working towards early retirement, for example, you might aim for 25 times your yearly expenses and a 10% return so you can retire before 50.
4. Not diversifying
This is another common mistake beginners make:
Putting all their eggs in one basket.
One way to make the most out of your investments is invest in different assets. If most of your investments are currently in the stock market, then it’s a good idea to start investing in P2P lending, and vice versa.
Diversification not only protects you from economic downturns, but also keeps your savings growing over time.
For example, when the stock market crashed in March of 2020 by 33%, those who had P2P investments and other types of assets weren’t as badly hit and were still able to grow their savings throughout the pandemic.
Knowing how much to diversify is another matter altogether, as it depends on your goals and how much risk you’re comfortable with taking on. The good news is that with brokers and investment assets allowing investors to get started with small amounts of money, there is no excuse not to diversify.
5. Not understanding taxes
Look, we get it – no one likes reading about taxes.
But, we realize they’re important.
And if not understood, taxes can take a big cut out of your investments and decrease your returns. That’s why it’s always worth doing some research and making sure you don’t pay more tax than you need to on your investments.
When it comes to P2P investing, understanding taxes can get quite complex since it varies greatly from one country to another. In countries like the UK, investors can open up accounts called IFISAs, which allow P2P investments to grow tax free up to a limited contribution.
In other countries, you can set your P2P lending losses against taxes, while others will tax your income and capital gains separately (very confusing, we know).
In Europe, the best is to do your own research in your own language, since the regulations are so different from one country to another. If you want to see how others do it in your country, it’s also a good idea to check local P2P forums and see what others say.
BONUS: Not setting Auto-Invest
I know we said we’d list 5 investing mistakes, but this one was too good to ignore.
Unless investing is your passion, there is no need to spend hours every week doing research and keeping up to date with the news.
New investors believe they need to spend every spare minute researching assets and keeping up with the news. Fortunately, you don’t need to do that.
Investing is a tool. It helps you grow your wealth, reach your goals and ensures you’ll have a comfortable retirement. You shouldn’t spend more time on it than you need to.
With handy features such as Auto-Invest, you can set up your portfolio, so it grows automatically. For example, with Swaper you can set the country, the maximum loan amount and decide whether to reinvest or not.
That means you won’t have to regularly check your investments, and you can instead focus on what you want to do: your life, your career and your family.
These are some of the most common investing mistakes most beginners make.
We hope that by learning about them, you can avoid them and get a head start on your investments.
Thinking about opening an account?
Sign up with Swaper for free, and you can start investing with just €10!