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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.

2. You are unlikely to be protected if something goes wrong

• Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.

• Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here.

3. You won’t get your money back quickly

• Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.

• The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.

• If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.

4. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

5. The value of your investment can be reduced

• The percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.

• These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

Managed Portfolios

Make the most of your ISA and SIPP allowance – or invest in a general investment account

If you haven’t yet used your ISA or SIPP this year, we have two options for you to consider – the Wealth Club Portfolio Service and the Quality Shares Portfolio.

Both services are designed to help more experienced investors grow their wealth in the long term without the hassle of selecting your own investments (we do that for you).

As you know, your money in an ISA is free from UK income and capital gains tax. But any unused ISA allowance cannot be carried over – you must use it before the end of the tax year, or lose it. Tax rules can change and benefits depend on circumstances.

Meanwhile, pensions still offer one of the most generous sets of tax relief available, in our view. When you contribute to a pension – such as a SIPP – you could get up to 45% tax relief on the way in (up to £4,500 on a £10,000 contribution), tax-free growth whilst your money is invested and up to 25% tax-free cash when you take money out. Most UK tax residents under the age of 75 are eligible for pension tax relief on contributions. Plus, pensions are not typically subject to inheritance tax, which many could find appealing (you can read more on tax relief in our article).

If neither ISA or SIPP are an option, you could consider investing in a general investment account.

Please note: our discretionary Managed Portfolios are long-term investments which can fall as well as rise in value; returns are not guaranteed. They are for investors happy to make their own investment decisions – they are not personal advice. If unsure an investment is right for you, please seek advice.

Wealth Club Portfolio Service

These five portfolios are designed to provide experienced investors with a best-value, sensible long-term home for their wealth. They are the type of portfolio a private bank or wealth manager might build for you – but without the hefty price tag. In fact, you could pay around 40% less than you would if you used an adviser, and roughly the same if managing a typical fund portfolio yourself on a DIY platform.

Quality Shares Portfolio

This portfolio, managed by Wealth Club Head of Equities Charlie Huggins, is specifically designed for people who are genuinely interested in investing. It invests in 15-20 global listed businesses chosen by Charlie for their resilience, financial strength and pricing power. As an investor, you receive an unparalleled level of information, insight and transparency.