Like other investment forms, P2P lending and real-estate crowdfunding come with associated risks. This post will introduce you with three classical investing mistakes that beginners and even advanced investor may make.
Investing mistake #1 : investing money you need
Always consider your future financial needs before investing. Many P2P lending companies provide a secondary market, but you’ll usually have to sell your loans for a discount, thus losing money. Worse, if this feature isn’t available, your money will be stuck for a long time.
Investing mistake #2 : investing too much, too early
Don’t be in a hurry ! I always start investing with a small amount, even with reputable companies. It takes time to get used to most websites; you don’t want to improperly invest your money because of a mistake in auto-invest configuration ! So, start small, and take time to get to know the platform. Once the returns satisfy you, gradually increase your investments.
Investing mistake #3 : not diversifying enough
Diversification is an absolute must in any investment form. When investing in peer-to-peer lending or real-estate crowdfunding, there are several degrees of diversification available. First, between the different companies themselves. No matter if you want to invest in secured on unsecured loans, for a short or a long duration, in individual or business loans; there will always be several companies offering great investment opportunities. Signing up is usually very easy, so splitting your investment between several companies is a no-brainer.
For peer-to-peer loans, there are two different diversification levels. First between loan originators; this is essential as these firms provide the buyback guarantee. But buyback is not infallible, so if one originator bankrupts, you don’t want to have all your money invested there ! Finally, I advise you to use the smallest loan size possible, in order to spread the risk between as many different loans as possible !