The 10 mistakes when saving and investing money that you should avoid at all costs

Finance is not an equation that has an exact, mathematical and immovable result. That is why its correct management allows for better results, but it does not always ensure success.

However, experience, both in saving and in investing, help set healthy financial guidelines and discard inappropriate practices. Those skilled in the art, such as wealth managers or financial advisers, including those who are present on the Finect platform, are well aware of good practices and the most common mistakes among individuals. These are 10 common mistakes when saving and investing.

save without investing

“Saving without investing is today more than ever throwing money away. It is clear that you have to save, but without investing, money loses value. We are now in a time of high inflation. And you have to know what you are investing for,” Diego recently highlighted. Valero, economist and president of Novaster and Beway, in a conversation with Finect.

A person who has money that they do not need in the short term -and who has previously prepared an emergency cushion for between 3 and 6 months- must overcome the present bias, according to Valero: “We give much more value to what happens to us today than to what can happen to us in the future, even if what is going to happen later is better”.

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Invest without an emergency cushion

Precisely, the emergency buffer is an inescapable ally of both the saver and the investor. It consists of accumulating a previous monetary amount to face unforeseen events or losses that may occur with guarantees. It is a way of guaranteeing money in case of having investments in products that are not totally liquid and for which you have to wait a while to redeem the money (for example, a pension plan).

A second reason put forward by experts in favor of the emergency buffer is the margin it provides when the person suffers a loss of assets due to the poor performance of their investments. Instead of withdrawing the money and preventing the long-term and compound interest come into play, the user will be able to resort to part of that mattress to cover the unforeseen event. The investment will be intact and ready to take flight when the markets rise again.

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A common investor mistake… when there are crashes

Investing when the market goes up is easy. Or at least the psychological barrier to making the leap from saver to investor is lower. The complicated thing is to move the saving with the wind against. The falls in the market do not mean the automatic sale of some shares or the contracted investment fund. “On paper it is easy to say that you can withstand a 10% drop in your investments. Things change when you see your assets go from 20,000 to 18,000 euros quickly,” they point out from Inversimply.

This financial advisory firm lists three reasons against selling a share or investment vehicle during downturns: long-term investors should not overreact to short-term market movements; it is easy to sell after a big drop, but when the market has already discounted much of the impact of the financial asset; and, selling in full decline, implies difficulties to enter the market again, in addition to “lost time”.

look at the short term

A classic from the point of view of many experts in financial planning. The return on an investment is seldom immediate and it takes time for money to pay off in the form of positive returns. The long term (a horizon of around 10 years) is the best antidote and the most faithful squire of the aforementioned compound interest, the way of chaining positive interests in investments.

The Finect platform, designed to facilitate personal finances, has a showcase to invest the first savings. In it you can consult, compare and hire suitable financial products for a first contact with this facet of finance.

Put all the money in the same place

It doesn’t matter if it is in terms of savings (a current account, a deposit to insure the money without taking losses) or in the investment. A single place for money is synonymous with risk. Therefore, experts always recommend diversifying.

Deposit the money in the first place they offer us

Most Spaniards invest without leaving the bank. For this reason, the average user is familiar with the names and products offered by their head entity. Sometimes, they can be profitable. Others, on the other hand, are financial products that do not pay.

Therefore, before investing or contracting a product, it is essential to find out, understand it and contrast its characteristics.

Fads and unreliable sources

Closely related to the previous point, another common mistake is to go to unreliable sources, contact people who claim to be financial advisers without being one, or fall into the trend of financial influencers without official accreditation to carry out financial advisory or analysis tasks.

Not valuing commissions enough

Commissions are one of the pillars of a financial product and by extension a sine qua non condition when starting to invest. For example, when it comes to investment funds, the various costs are deducted from the net asset value of the fund itself. Many times they are not taken into account and significantly undermine the net return received.

Any other financial product has costs, which are the source with which the issuing entity feeds its income. An online broker applies some type of expense for the sale and purchase of a share, however small it may be. And a bank that offers a client a deposit also includes commissions such as early cancellation. It is not the same to invest 20,000 euros with a commission of 3% than 0.9%: in the first case, you pay (and lose) 600 euros per year and in the second 160 euros.

Remove iron from diversification

Diversifying is one of the most common pieces of advice an individual will hear when seeking expert help. Diversification involves betting on different products or types of assets in order to dissipate the risk of losing money from an investment. From Ibercaja Management they point out that this way of varying savings should not be considered only by assets, but also by geography: investing in different countries is synonymous with reducing risk.

Assuming the wrong risk profile

A correct adjustment of the investment vehicle to the risk profile of each person is essential to sleep peacefully. Opting for a risk profile superior to the type of investor one feels (for example, conservative), generating feelings of fear at times of high market volatility. On the contrary, a person with less risk aversion who invests in conservative products, will feel little satisfaction when seeing more discreet returns in his checking account.

Finect has a tool with which users can find out their investor profile and the level of risk they are willing to take.

Know your investor profile


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