An investment portfolio should cover a range of investments. Whilst taking advantage of the tax reliefs on offer with VCTs, EIS and SEIS, investors should also consider investing in Social Enterprises (with the added bonus of Social Investment Tax Relief) and in VCTs which focus on the AIM market.
Investing in an AIM focused VCT is quite different from other investing – where a deal would usually take 3-6 months to negotiate, the AIM market moves much quicker and most deals are done in a matter of weeks to ensure a deal is made before a company floats. However, the AIM market is less liquid than the VCT market and it can take longer to sell your shares than it did to buy them.
By diversifying your portfolio, you are also lowering your level of risk. Instead of putting all your money into one investment, you can spread your investments over a number of businesses and hope that in that group you have more wins than losses. The number of companies that create huge returns for investors on exits are very few, but recent examples coming out of American tech companies such as WhatsApp which sold to Facebook for $22billion can create a false impression for investors. Investors need to be realistic and understand that most deals exit between 5-10 years down the line and rarely for a 30x return on investment.
However, by diversifying you are more likely to find that unique company that is going to give you those massive returns, and it will allow you to supplement your income with the smaller returns whilst you wait for the big payout.
AngelNews UK 