Start investing: 6 mistakes to avoid

You have some savings and are considering getting started with investing? Although this process may seem accessible at first glance, it nevertheless requires you to master certain basics and adopt the right reflexes from the outset. myLIFE helps you identify the six most common mistakes to avoid so you can start off on the right footing.*

Today, there are many ways to grow your capital: equities, funds, real estate or other financial instruments. While it has become particularly easy to access online trading platforms, that doesn’t mean you should approach investing as casually as going to the mall. Investing requires thought and prudence. And although there is no magic formula for consistently finding the best investments, there are undoubtedly missteps that must be avoided. To get off to a good start, here are the six most common mistakes to avoid when beginning to invest.

Error no. 1: investing without an objective or strategy

This is one of the most frequent mistakes. Many beginners get started by following advice from people around them or after hearing about an opportunity, without really knowing why they are investing. However, without a defined budget, a clear objective or a wellestablished strategy, you risk making inconsistent and counterproductive choices.

Whether you want to prepare for retirement, finance a property project, pay for studies, generate additional income or simply grow your savings, it is essential to define your objectives as well as your risk tolerance. These will guide your decisions and help you remain aligned with your situation and your needs.

Here are some guidelines to structure your approach:

• • Clearly define your objectives. They determine the strategy to favour (more risky but potentially more profitable or more secure but less performant) as well as how long your money will be invested. For example, preparing for retirement is generally a long-term endeavour and may include a degree of risk if started early, while a short-term property project requires more secure investments.
  • Establish your investor profile. Knowing the level of risk you are willing to accept is essential in order to choose suitable investments. Be aware that your bank is legally required to determine your risk profile before giving you investment advice.
  • Build up a precautionary savingsreserve. This allows you to deal with certain unexpected events (urgent expense, loss of income, health issue) and to avoid having to sell your investments under unfavourable conditions.
  • Do things in the right order. After building up precautionary savings, make sure you progress step by step along the investment pyramid rather than rushing into the investments that appear the most attractive and which also turn out to be the riskiest.

It is essential to familiarise yourself with the basics of investing: how markets work, compound interest, the concept of risk and volatility.

Error no. 2: not understanding the products you invest in

Financial products can be complex. Before investing, it is therefore important to understand how they work. For example, if you take out a life insurance policy without knowing its features, you may discover a few years later management fees or exit penalties that you had not anticipated.

It is essential to familiarise yourself with the basics of investing: how markets work, compound interest, the concept of risk and volatility. Without this knowledge, you may make decisions that are not suited to your situation.

Some good practices to help you find your way:

• • Educate yourself before investing. Take the time to understand where you are putting your money. Rely on reliable sources (books, podcasts, recognised specialist websites such as myLIFE) and analyse the characteristics of the products that interest you: advantages and disadvantages, risks, associated costs, etc. You could also seek advice from a professional in the field.
  • Adapt your investments to your level of understanding. Favour simple products to begin with and avoid investments that seem too complex. Another option is to delegate the management of your investments to experts or to seek their advice before making your decisions.
  • Remain vigilant regarding trends. Just because an investment is popular does not mean it is suitable for you. You may expose your money to an overvalued or overly risky product in relation to your profile.

Error no. 3: neglecting portfolio diversification

Placing all your savings in a single type of investment exposes you to what is known as concentration risk. For example, investing only in real estate exposes you to significant losses if that market goes through a difficult period, even if other sectors are performing well.

A lack of diversification exposes you to the ups and downs of a company, a sector or a geographical area. An isolated event can then have a significant impact on your invested capital. By spreading your investments, you smooth out market fluctuations and reduce the overall volatility of your portfolio.

Some key reflexes to better diversify your portfolio:

• • Spread your investments. Depending on your profile, combine secure products with riskier ones (see the investment pyramid).
  • Diversify your investments. Vary sectors of activity (technology, energy, healthcare, finance, etc.), geographical areas (Europe, United States, emerging markets) and asset classes (equities, bonds, real estate, precious metals, etc.).

Don’t know how to do this? Get support from a professional!

Taxation is a factor to consider, especially in the Luxembourg cross-border region where tax rules may vary depending on the country of residence and the country where the product was subscribed.

Error no. 4: underestimating the impact of costs and taxation

At the beginning, you may be tempted to focus solely on the return on your investments without taking into account the costs: management fees, brokerage fees, entry fees, etc. These costs, often not immediately visible, can nevertheless significantly reduce your gains. For example, two investors each invest €10,000 in the same financial product with different fees. Over the long term, even small fee differences can have a notable impact, as they apply each year and gradually reduce the overall performance of your investment.

Taxation is also a factor to consider, especially in the Luxembourg cross-border region where tax rules may vary depending on the country of residence and the country where the product was subscribed. Underestimating these aspects can reduce your net return and weigh on the profitability of your investment.

Some key elements to take into account:

• • Check the fees. Compare the costs associated with different products in order to choose those offering the best value.
  • Find out about taxation. Understand how dividends, interest or capital gains are taxed on your investments, depending on your country of residence and the product chosen.

Error no. 5: forgetting to monitor your investments

You have taken the plunge and invested. Your products are aligned with your profile and your portfolio is diversified. You then let your money “work” and no longer check your investments for months, or even years.

Meanwhile, financial markets are constantly moving. Some assets may outperform, others may underperform or become riskier. Your portfolio may thus become unbalanced compared to the allocation you initially chose.

Moreover, your personal objectives may change: career change, desire to review your investment strategy or to gradually secure your assets. Without regular monitoring, you may no longer be aligned with your objectives, lose diversification or see your portfolio move away from the balance initially defined.

For appropriate monitoring of your investments:

• • Carry out periodic reviews. Regularly check how your investments are developing to ensure they still match your objectives and your situation. Avoid overly frequent monitoring, which could lead you to make impulsive decisions that are not suited to your strategy. Also avoid adjusting your positions too often. These adjustments incur costs which, when accumulated, can weigh heavily on the overall profitability of your portfolio.
  • Reassess your portfolio if necessary. While financial market fluctuations are normal, adjusting your approach may be relevant in certain situations: changes in your personal objectives, modification of your risk tolerance or optimisation of your asset allocation.

Error no. 6: letting your emotions guide you

When you invest, especially when starting out, it is difficult to remain completely objective in your decisions. You may wait for the right moment before daring to start, give too much importance to certain isolated pieces of information, panic when markets fall and sell everything, or rush to buy for fear of missing an opportunity.

These unconscious behaviours are influenced by what are known as cognitive biases: instinctive reflexes that can disturb your judgement. Your decisions then no longer rely solely on logical reasoning, which can affect the performance of your investments.

To limit emotional decisions:

• • Schedule regular contributions. DCA (Dollar-Cost Averaging) consists of investing a fixed amount of money at regular intervals, regardless of market movements. This helps smooth risks and reduce potential losses.
  • Adopt a long-term approach. Financial markets experience many fluctuations, but the overall trend over time is generally upward. This is why investing with a long-term horizon helps to offset fluctuations and limit your exposure to risk.
  • Keep a cool head. Analyse the situation objectively and stick to the investment strategy you set at the outset.

Getting started with investing does not require being an expert, but it does require a minimum of method and discipline. By avoiding the most common mistakes and applying a few simple rules, you can build a solid foundation for your investments. Do not hesitate to seek support from your bank adviser. They can help you structure your strategy, taking into account your objectives, your financial situation and your investment horizon. Calling on a real expert always represents added value, even if it comes at a cost.

* Content translated from French by the BIL GPT AI tool