{"id":1089,"date":"2021-08-09T09:56:43","date_gmt":"2021-08-09T06:56:43","guid":{"rendered":"https:\/\/swaper.com\/blog\/?p=1089"},"modified":"2022-03-14T11:59:02","modified_gmt":"2022-03-14T09:59:02","slug":"how-much-to-invest","status":"publish","type":"post","link":"https:\/\/swaper.com\/blog\/en\/how-much-to-invest\/","title":{"rendered":"How Much To Invest? 3 Important Things to Consider Before You Start Investing"},"content":{"rendered":"

So you want to start investing<\/a>:<\/p>\n

But how much should you<\/em> invest?<\/p>\n

The right answer is \u201cit depends\u201d.<\/p>\n

But what does it depend on? And where should you get started with your calculations?<\/p>\n

Although there is no one-size-fits-all answer, we thought it would be useful to provide some pointers on where to begin to help you figure out how much to invest.<\/p>\n

How Much To Invest? 3 Things to Consider<\/h2>\n

When it comes to investing, whether it\u2019s P2P loans<\/a>, stocks<\/a> or cryptocurrencies<\/a>, there are a few things you want to take into account when figuring out how much to invest:<\/p>\n

    \n
  1. Your goals<\/li>\n
  2. Your risk tolerance<\/li>\n
  3. Accessibility of the asset<\/li>\n<\/ol>\n

    Let\u2019s dive into each one.<\/p>\n

    1. What are your goals?<\/h2>\n

    This is the natural place to begin: what are your goals? Why are you investing? Is it for something long-term like retirement<\/a> or your children\u2019s future? Or something more short term like buying a house?<\/p>\n

    This goal will help give you a rough idea of how much you want saved up. If it\u2019s a house, \u20ac50,000 might be enough for a deposit. If it\u2019s a lot more long term, then maybe you\u2019re looking at \u20ac500,000!<\/p>\n

    Work your way backwards<\/h3>\n

    Once you have your number, you can work your way backwards.<\/p>\n

    Say, for example, that your goal is \u20ac400,000 and you want to retire at the age of 55.<\/p>\n

    Your savings are currently at \u20ac10,000. If you’re 30 years, you have 25 years to hit your goal.<\/p>\n

    If we use the average interest rate of 8% of the stock market, you will be able to do the calculations and see that you would need to save and invest \u20ac350 per month, for the next 25 years, to reach your goal (the power of compound interest<\/a>).<\/p>\n

    This gives you a good number to start with: now you know how much to invest!<\/p>\n

    (Not sure how to calculate your monthly contributions? Use a compound interest calculator<\/a>).<\/p>\n

    Create an investment plan<\/h3>\n

    Now that you know how much you want to save, you\u2019ll want to understand what the best portfolio allocation<\/a> is and how much you want it to be diversified. Now, in the example above, we used an average return of 8%.<\/p>\n

    But what if you had a lower return, or a higher one?<\/p>\n

    Depending on what you invest in, your rate of return will vary. We\u2019ve talked about various asset classes including dividends, cryptocurrencies and stocks. Your annual return will vary depending on the asset class. With P2P investing<\/a>, you can expect to get even higher returns of 14% and even 16% with our bonus<\/a>.<\/p>\n

    With a return of 14%, we can recalculate the numbers to see how much you would need to invest to hit your \u20ac400,000 goal.<\/p>\n

    With 8% return, it’s \u20ac350 per month. But with a 14% return, it’s only \u20ac30 per month.<\/strong><\/p>\n

    But here’s the thing:<\/p>\n

    Let’s say you’re comfortable investing \u20ac350 per month for 25 years.<\/p>\n

    At 8%, that’s \u20ac400,000. At 14%, that’s more than \u20ac1.2 million<\/strong> – that’s 3X your original savings target.<\/p>\n

    Pretty good, right?<\/p>\n

    Now, we\u2019re not saying your entire portfolio has to be in P2P lending<\/a>, but it does show that having some exposure to high return assets can help you reach your goals faster.<\/p>\n

    What if I don’t have a goal?<\/h3>\n

    It\u2019s possible you don\u2019t have a specific goal.<\/p>\n

    You just want to start investing because you know it\u2019s financially savvy and you want to save for something in the future. In that case, you can follow a rule of thumb of how much to invest in: for example, the 50\/30\/20 rule says you want to be investing 20% of your income.<\/p>\n

    Rule of thumbs are not the best since they are not personalised according to your personal needs. That\u2019s why, don\u2019t fret if 20% is too high. Keep decreasing that number by 1%, until you find a number that you\u2019re comfortable with.<\/p>\n

    No matter what percentage you stick to, it\u2019s important to start as soon as you can. If you just save and don\u2019t invest, your savings will grow a lot more slowly \u2014 especially with current interest rates at all time lows. With the magic of compound interest, your savings will grow a lot more quickly over time.<\/p>\n

    2. Your risk tolerance<\/h2>\n

    But what if you\u2019re not comfortable with investing in risky asset classes and prefer keeping risk to a minimum?<\/p>\n

    That\u2019s called risk tolerance. It\u2019s important to invest in what you\u2019re comfortable with.<\/p>\n

    If you\u2019re someone who is prone to worrying and prefers to sleep well at night, then you want to prioritise assets that are low risk<\/a>. If you\u2019d rather focus on getting high returns with more risk, then you\u2019ll be able to invest in higher risk assets.<\/p>\n

    Usually investment experts recommend investing in riskier assets when you\u2019re younger, since you have more time to ride out economic downturns<\/a>. Then, as you get older it makes sense to go into lower risk asset classes since you will be withdrawing.<\/p>\n

    3. Accessibility<\/h2>\n

    How easy and how much do you need to commit to start investing in your asset class?<\/p>\n

    This is an important question, because investing in certain assets will require some minimum knowledge, or a commitment of a certain amount of money.<\/p>\n

    With stocks, for example, you can start investing with several brokers for as low as \u20ac10. You might need to do a bit of research on the broker, and \u2014 if you plan on picking stocks \u2014 on the companies you\u2019ll invest in.<\/p>\n

    With other asset classes like real estate lending<\/a>, you will need to commit a large amount and do a lot of research.<\/p>\n

    With dividend growth investing<\/a>, you can start small, but you\u2019ll need to do a lot of research.<\/p>\n

    One of the main benefits of P2P lending is that you can start for as little as \u20ac10, and you don\u2019t need to do too much research.<\/p>\n

    Conclusion<\/strong><\/h2>\n

    These are the main things you want to consider when you decide how much to invest:<\/p>\n