Follow us on social media and you’ll see we talk about an array of different topics, from tax efficient investing through to property investing. Our whole focus is to engage, inform and educate - we want you to be aware of just how beneficial investing can be.
But of course, investing isn’t guaranteed to return a profit. There is always a level of risk involved regardless of the investment you make, and it’s for this reason why you’ll often see the phrase ‘capital at risk’ on our updates.
An important phrase but one that many don’t truly understand its role, today I wanted to take the opportunity to explore it further, discuss exactly what ‘capital at risk’ means and why we use it.
What does ‘capital at risk’ actually mean?
As a company that facilitates investment, we need to make sure all investors are aware there are risks involved. Whether you’re an experienced investor or it’s your first time, having that understanding is key to ensuring you make the right investment choices for you.
Whilst it’s always recommended you carry out your own due diligence and take advice from a professional advisor, when you explore one of our live investment opportunities, you’ll be able to get an insight into what the risks are on a general level and what can happen with your investment if one of the risks occurs.
However, when we’re talking about investment opportunities on social media, we’re limited by characters. Head to Twitter, for example, and we have 280 characters to be able to explain our message. It might be twice as much as it was originally, but 280 characters is only a short sentence or two. As such, we can’t go into detail on what the risks of investing are every time and instead, we need to make it clear than when we’re specifically talking about an investment opportunity, there are risks involved and due diligence should be carried out - and the universal guidance by the Financial Conduct Authority (FCA) is to use a phrase such as ‘capital at risk’.
Why do I only see ‘capital at risk’ on certain social media updates?
We don’t need to use ‘capital at risk’ throughout all of our social media updates. If we’re providing information or insights into a general topic, a risk warning isn’t needed. Take our post ‘What does the future hold for the Enterprise Investment Scheme’ as an example. It’s all about offering opinion and guidance on a topic and doesn’t directly encourage any form of investment.
If we’re promoting a live investment opportunity and directing you to download the Investment Memorandum (the document that features all of the details of the opportunity, including the financials and returns), this can be a clear form of promotion and so we need to make it explicitly clear risk is involved during the investment process.
So whilst there isn't always a necessity to use the ‘capital at risk’ phrase, there are a number of other reasons why you might not see it.
One of the most notable is that the term itself, 'capital at risk', doesn’t actually need to be used word-for-word. It’s the default option for social media usage as it’s clear, direct and straight-to-the-point, but in theory as long as a phrase of a similar style was used that inferred risk, this could very easily be used in its place.
Similarly, you may not see it within the copy of an update itself, but it may be included within any accompanying images. This is a point for discussion in the industry, as the text must be obviously visible on the image at all times (and this can be difficult when you’re trying to account for all screen sizes), but the overarching guidance is that as long as a risk warning is immediately clear, where it is within the message isn’t of importance.
Why is it necesssary I understand it as an investor?
Every investor will have different requirements and expectations from their investment portfolio. However, all will encounter risk at some level throughout their investments and it’s vital an investor is fully aware that risk is always involved in an investment.
It may sound obvious regardless of whether you’re a new or experienced investor, but whilst there are options in place to help mitigate risk - see the tax reliefs available under the EIS as an example - you’re not guaranteed to see your initial investment returned, with or without a profit.
Something that’s the case across all investments - even if you place your money into a high street bank’s current account it’s only guaranteed to be withdrawable back to you to a maximum of £85,000 - some investments are riskier than others, but non are risk-free. It’s critical that this is understood as part of the investment process, hence why we use the phrase ‘capital at risk’ where appropriate on social media.
Making investments that are right for you
When deciding on whether to make an investment or not, there is a lot of thought that needs to go into the process. Above all else, it is always important to know that your capital is at risk, and for many it is then a case of determining whether the risk factor of the investment matches their own personal (or portfolio) risk preferences.
Investing can be a truly great process for everyone involved. In the world of tax efficient investing into high growth SMEs, the SMEs can get the finances they require to grow, scale and succeed, whilst investors can simultaneously back the next generation of British businesses - making a difference and effectively being an impact-driven investor - whilst benefiting from a variety of tax reliefs.
And as long as you are continually aware of the risk profile of an investment and you complete your own in-depth due diligence, there is no reason why the potential for return should not accurately reflect your overall expectations.