Peer to peer investment rules

Introduction

Whenever it comes to producing investments, you are going to get a lot of various recommendations from a variety of people. Even seasoned professionals with years of expertise in the market will have divergent opinions.

This implies that when you are just starting, it can sometimes become difficult to recognise what is correct and what is incorrect.

Having that said, there are five laws of investing that the vast majority of investors will agree on. As a result, we have compiled a list of the most helpful guidelines to live by that you may adhere to when you first start investing.

Spend less as you take in each month

It might appear to be self-evident, yet a lot of us have trouble keeping our spending in line with our budget, particularly when we don't attempt to save money first.

The key to getting disposable income, which refers to the money that is left over in your bank account after paying your taxes, bills, and other essential expenditures of daily life, is to spend less than you make. Your ability to generate wealth and contribute to investments is directly correlated to your level of income.

In reality, though, maintaining a spending level that is lower than one's income might be challenging. This is due, in part, to Parkinson's Law, which states that the amount of work will increase to fill the amount of time that is allocated to it. The same is true with money since you'll never run out of ways to spend it because there are always new things to buy.

Paying yourself first is one of the most effective strategies for addressing this problem. As soon as you receive your paycheck or another source of money, deduct 10% of it and deposit it into your savings accounts. If you feel that 10% is too much, you might begin with 1% and then gradually increase it.

After withdrawing your savings, you are free to spend whatever is left over because you have completed your goal of saving money at that point. This is the secret to spending less money than you bring in each year.

Be patient

The majority of investments won't make their owners rich quickly.

Compounding interest is the key to increasing returns for many different types of investments, including the stock market and peer-to-peer lending. This indicates that the majority of the earnings will arrive later on during the investing time, and as a result, patience is essential in this situation.

The concept of "timing the market" is held by certain investors. The study of market cycles as well as the practice of investing based on the historical data is referred to by this term. Typically, this strategy is utilised when market volatility is high.

However, trying to "time the market" is a dangerous tactic (similar to gambling), especially when one considers the fact that 95% of money managers do not outperform the market on average.

Imagine investing €200 per month for the next 20 years at an annual interest rate of 6% compounded. After the investment term, the entire value of your investment would exceed €88,000, and the interest on your investment would amount to over €40,000.

It's not a good idea to put all of the eggs in one basket.

To lower your overall risk exposure, you should diversify your investments by allocating them among a variety of asset classes. Even if one of the investments is unsuccessful, others should still provide a satisfactory return. When the market is experiencing a slump, professional investors often employ this tactic to safeguard their entire wealth. But how exactly can you diversify your investments if you are a rookie investor?

First, search for resources that do not duplicate one another. For instance, those operating in distinct fields or consumer markets. Those wishing to invest in a diversified portfolio that is automatically managed have a solid alternative in exchange-traded funds (ETFs). Your assets are better protected from unsystematic shifts in the market as a result of this.

Second, you should invest in a variety of asset classes. For instance, it would be wise to save some gold, put money into peer-to-peer lending , and put money into real estate (through crowdfunding platforms). In this approach, you may also steer clear of the systemic market crashes that the stock market is prone to experiencing on occasion.

When you diversify your holdings, you reduce the value of every individual item, but you increase the likelihood of achieving greater returns on your investments as a whole. Think about limiting yourself to a single investing strategy at first, then introducing a second one after six to twelve months has passed.

Invest consistently and for the long term

Emotions (as well as thinking in the short term) have been shown to cost investors a significant amount of money in research. Unpleasant feelings have been shown to correlate with poor returns on investments across the board. And it's no surprise: if you put your funds and then watch the market crash, you'll probably be tempted to liquidate your assets to recoup some of your losses.

Because of this, we are huge supporters of the strategy known as cost averaging, which entails investing a modest amount of money each month rather than all of it at once. You will be less inclined to feel any bumps in the road if you commit to investing the very same amount of money every month. This will help you transform investing into practice.

One of the greatest strategies to ensure that you spend less money than you make while also getting into the practice of investing regularly is to immediately put aside ten% of your salary and invest it. This should be done as soon as you receive your paycheck.

Investing in the long term comes with responsibility and necessity to be aware of the situation in the market. You cannot just invest money in various Peer to Peer and crowdfunding platforms and do nothing. If you want to dodge losses, due diligence of your investment platforms should be necessary. Tools such as Sneakypeer scoring can be helpful to understand if your investment platforms become safer or not. For example, platforms such as Mintos, ViaInvest and Debitum have increased their Sneakypeer scoring due to newly acquired Investment Brokerage licence. 

Don't raise the price too much

What do you think about a charge of two%? Doesn't seem to amount to much, does it? Why even bother wasting your time caring about a meagre two% of the total? Fees are like those things that, at first glance, don't seem like much, but they can quickly add up.

If you put €1,000 over 20 years and receive a return of 10% annually, you will end up with close to €7,000. However, if you pay 2% in fees, instead of earning 10% on an annual basis, you would only get 8% (10% minus the 2% you paid in fees equals 8%). So, what happened to the seven thousand euros you were anticipating after twenty years? The current value is lower than €5,000.

This little 2% will eventually cost you more than two thousand euros over twenty years.

Your overall assets will suffer as a result of the fees, and there will be no genuine gain. What are the ultimate investment guidelines that the majority of investors follow? Fees should never exceed 1% of the total.

Conclusion

These are the five laws of investing that should be followed by each serious investor. Investing should be monotonous, steady, and result-oriented even though these characteristics are not particularly attractive. When the time comes for you to pay for your child's school, go on vacation, or retire, the money will already be set aside and ready for you. Exactly for this purpose is investment carried out.