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Money can be made through investment in many different ways, in a variety of markets, across various geographic regions and global economies. Today, all anyone really needs to start building their investment portfolio is a smartphone and access to the internet.
But in order to make truly significant returns there’s a little more to it than signing up to a free investment site and a number of factors you should consider before making any serious investment decisions.
Indeed, investing extra cash in areas like the stock market and buy to let property are some of the best-known, most effective ways to start earning a lucrative passive income.
However, these endeavors carry with them certain degrees of risk and often, due to a lack of research, experience, and basic patience, there are a lot of common investing mistakes people make that can quite easily be avoided.
Throughout the Covid 19 Pandemic, the way people viewed investing changed considerably.
Suddenly, this lucrative practice was not merely restricted to the high fliers of the New York Stock Exchange, or wealthy business people looking to expand an already extensive portfolio.
With time that people simply didn’t have before, many started investing money into online stocks and shares as uncertain economic circumstances inspired people to start diversifying their existing income streams.
However, not everyone is Warren Buffett and this unprecedented increase in the number of amateur investors worldwide highlighted a range of common investing mistakes people make when they aren’t used to this often complex and unpredictable practice.
The purpose of this blog is to try to help you avoid these errors by taking you through the 5 biggest investing mistakes that prevent people from earning those lucrative, long-lasting returns.
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By submitting your details you agree to allow RWinvest to store and process the information submitted and receive product information and other communication, as stated in the privacy policy.
History has shown us time and again how quickly the investment game can take a turn for the worst when people get caught up in the excitement and trends of the time and don’t fully understand what they’re doing with their money.
In recent times, the most famous examples of investments turning sour on a global scale are those that led to the 2008 financial crash, highlighting some of the biggest mistakes in property investment history.
In this instance, cheap credit and poor lending standards created a massive property bubble and when this bubble burst, banks were left with trillions of dollars of worthless subprime mortgage investments.
The big difference between this and other major investment failures is that the majority of these investments were made by regular earners who in hindsight simply couldn’t afford them. This led to the worst global recession since the 1930s, costing millions of people their jobs, their savings, and changing their lives forever.
While this is an extreme example of the consequences of bad investment practices, it highlights the important fact that investment in any area carries with it a certain risk factor and the importance of understanding the market in which you’re putting your money, particularly for beginners.
Whether investing in property, stocks or a promising startup, keeping tabs on current market news, the economic climate, and even the world’s latest political dramas, can all help you make a confident and informed decision on any potential investment.
Ignoring the external factors that could hinder or enhance the chances of making a sizeable return on investment is a mistake that many inexperienced investors make as they rush to earn immediate, short-term returns. Key among these external influencers is the current rate of inflation for instance.
While saving your cash is often regarded as a safer and more secure option than investing it, this is not always the case. For example, if the interest rate on your savings is below the current rate of inflation, then its value can begin to decrease over time. Interestingly, investing in the property market is a proven and well-established means of protection against rising rates of inflation as you’re putting your money into a physical asset.
As well as the latest trends within an investor’s market of interest at a given time, understanding and keeping up to date with more external factors like inflation and interest rates is an equally important part of any successful investment strategy.
A key factor in building a strong and secure investment portfolio is diversification, i.e. not committing all of your capital to one investment or even to one market. By spreading money over a number of different investments, be they stocks and shares or even different types of buy to let properties, investors can protect themselves against significant losses if a specific market or individual investment takes an unexpected dive.
Unfortunately, often purely focused on short-term returns, many investors don’t take the time to spread the risk across different sectors making this one of the biggest investment mistakes we’ve seen beginners make in recent times. No matter what the social media experts say, building a comprehensive portfolio that weathers uncontrollable market storms is difficult. This takes time and seeking the investment advice of an experienced financial adviser is a highly recommended course of action.
One of the best ways to diversify any investment portfolio is by investing in more than one rental property. Often referred to as buy to let property, this type of investment presents one of the most reliable, high-earning opportunities out there and carries with it a number of benefits that will protect investors from fluctuating markets.
By investing in more than one buy to let sector, let’s say a residential and student property, investors won’t be as vulnerable to external market factors.
Additionally, property investment presents a unique opportunity to enter various global markets, offering protection against struggling domestic markets and decreasing the overall investment risk.
The recent surge in regular earners becoming part-time investors has also given rise to a rather clouded perception that investing is a short-term game where massive returns can be made in an instant. Of course, there are cases – often widely publicised on social media – of beginner investors striking gold immediately, quitting their jobs, and moving to Dubai for a life of Arabian luxury.
But building a successful, stable and dynamic investment portfolio that produces regular long-term earnings and can journey through market volatility, takes time and financial planning.
This is particularly applicable when it comes to building a strong property investment portfolio, where focusing solely on short-term returns is widely regarded as one of the biggest mistakes in real estate investing.
For those with lower risk tolerance, the property market is one of the most stable and lucrative ways to earn investment returns. But all successful investors and property experts will agree that the greatest rewards are earned over time.
While rental incomes, particularly from completed and tenanted properties, can earn investors an immediate passive income, the most handsome returns are to be made through capital appreciation.
This is when a sustained period of capital growth increases the value of a property over time and investors sell it for more than its original purchase price. An excellent long-term investing strategy, there are major returns to be made through this highly lucrative method – if you know where to invest!
Currently, there are some major capital growth opportunities in the UK buy to let property market, none more so than in the North West, judging by the latest house price index.
With property prices below the UK average and well below comparable London prices, the thriving Northern powerhouses of Liverpool and Manchester present some of the most affordable and lucrative investment opportunities.
With experts predicting property values to increase by 11.7% over the next five years after a brief drop in 2023, there has never been a better time to invest in rental property in this thriving region and watch your investment increase in value over time.
Read our article on the best places to invest in property in the UK if you’re unsure where to invest in property.
As mentioned above, investing in any area can be a complicated and often unpredictable means of earning an income.
For any investor, the key to making a successful and steady return is first undertaking comprehensive research of any given market or investment area. Yet it is remarkable how many people fail in this endeavor as a result of a simple lack of due diligence.
When for example the property market is healthy and stock prices appear favourable, it is easy to jump in and make an investment that may give your bank account an instant boost.
However, the nature of investing is that it is dependent on a plethora of factors that can quickly turn that feeling of instant, high-rolling success on its head.
Often, when investors don’t take the time to research a certain market and establish some longer-term financial goals, they are more likely to panic when markets begin to fluctuate, sometimes leading to rash decisions that can make them lose out even further in the long run. Additionally, the rapid rise of social media investment gurus offering their free financial services can lead people to jump to quick conclusions and ignore where a market is headed.
If we consider the current UK property market for example, it’s easy to see when an investor who has not properly read up on the latest market forecasts could get frustrated and perhaps sell at the wrong time.
In 2023 for instance, property values across the country are set to drop for the first time in a few years, before rising steadily in most regions over the next five years – the North West particularly. However, not realising the impending growth or taking the time to seek the advice of a credible financial advisor, a more impulsive investor may panic and exit the market at the wrong time.
The bottom line is that investing can be a complicated business and maximising the chances of the positive future performance of your investment takes both time and a significant amount of research.
This may seem like a fairly simplistic point, but a recurring trend that runs through most of the biggest investment mistakes is perhaps the most simple and avoidable of them all. As mentioned above, building a stable and durable investment portfolio takes time, research, and the establishment of clear long-term investment goals.
That is why, as an investor, patience is one of the greatest assets in your entire portfolio. This is particularly true of investing in the buy to let property market where, as is predicted in the UK right now, your property can grow in value over time while you can still earn a steady and lucrative rental income.
Equally, however, if the stock market is more for you, it’s important to take the rough with the smooth, be committed to a long-term strategy, and not make rash decisions when share prices take an inevitable turn.
Shakespeare once said, ‘How poor are they who have not patience’! An increasingly relevant observation from which any investor can acquire immeasurable value.
If you’re interested in investing in a highly lucrative, long-term asset in 2023, we can help you get started with UK property investment.
By selecting properties in only the best locations and working with the UK’s top property developers, you know you’re in safe hands by letting us find your perfect buy to let property.
Contact us today to get started and begin your UK property investment journey.
John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.
Disclaimer: This guide was updated in Q1 2023. Depending on when you read, data may be outdated and no longer accurate. Always do your own research to get the latest figures.
By submitting your details you agree to allow RWinvest to store and process the information submitted and receive product information and other communication, as stated in the privacy policy.
