If you’re a seasoned investor, you’ve probably heard the term ‘diversification’ tossed around here and there. In short, it means spreading all your investments across different asset types or within a specific class so that the risk of losses is mitigated while increasing your exposure to other potentially excellent investment opportunities.
While you might have a favorite investment like cryptocurrency or EIS Investment Opportunities, putting all your eggs in one basket can be irresponsible. A varied investment portfolio should have investments across several asset classes, industries, and more, each with unique benefits and diversification opportunities.
One of the best ways to add diversity to your investment portfolio is by adding start-up investments, which can be an entryway into many different sectors, from technology to lifestyle. Yet, this begs the question, why should you add start-ups to your investment portfolio? We outline several of the most significant reasons below.
A Spectrum Of Start-Ups To Choose From
Between March 2021 and March 2022, an average of 753,168 brand-new start-ups were created in the UK alone. With so many start-ups created each year, choosing which ones to invest your hard-earned money in can seem almost never-ending, which can be one of the best parts about them.
Whether you’d like to support an e-commerce start-up or an early-stage technology company, there is an abundance of start-ups to add to your investment portfolio in just about any sector. Due to this, backing a start-up can help diversify your portfolio.
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You can invest in several start-ups within the same growth market or well-performing sectors like the technology industry. If this is the case, consider using an alternative investment manager like Oxford Capital, which specialises in helping seasoned investors gain access to early-stage tech companies in the UK.
Tax Incentives For UK-Based Investors
Although various class assets can help you diversify your investment portfolio, only some have the benefit of providing tax incentives for UK-based investors. Whether you choose to invest in start-ups with the help of capital growth SEIS or EIS schemes, they can help mitigate the risk of investing in UK-based small start-ups while encouraging investors to spend their investment money on them.
So long as you’ve held shares in the start-up for at least three years in an EIS, it qualifies for tax relief of 30% of the cost of the shares you’ve invested in the company. Whereas, with a SEIS scheme, you can get up to 50% of your shares’ price, making start-up investing attractive to investors. Not to mention, both schemes have other benefits that can make start-ups even more appealing.
As a seasoned investor, you’ll know that no investment opportunity comes without risks. Yet, if you do your research, you can find ways to mitigate these risks as much as possible so that losses are few far and few in between. So, whenever you see a start-up, you might be interested in conducting in-depth research into the business to ensure it’s viable.
During this research process, you’ll want to investigate every inch of the company so that you can rest assured that there isn’t anything that may arouse suspicion on your end. Many factors can make a business look questionable, so it’s essential that you investigate them to ensure that your investment money will be well-spent.
Whether it’s financial, systematic, or personnel-related risks, you should vet every inch of the company to determine whether it would be a sound financial venture. Not to mention, supposing that you find something worrying, if you’d like to have a hand in the start-up you’re backing, you could consider helping the business address it.
However, this does depend on the type of start-up you choose to invest in, as not all of them will be able to accept ‘hands-on’ help. For instance, if you opt to back a technology start-up, most of the issues they face will be internal, which can be resolved with a hands-on approach, unlike those that are stock-market based.
While it is vital that you research any investment opportunity, many investors would argue that you require less knowledge for start-ups than you would for other investment opportunities. This could be in areas such as cryptocurrency, or the stock market.
Typically, the knowledge for successful start-up investing is more accessible than other investment opportunities, as much of it is common sense. Various factors go into making a successful start-up, from a credible business idea, sound market research, knowing their target demographic, and much more, which can make it easier to get started in this asset class.
Not only can knowing what makes a successful start-up business help, but the dawn of crowdfunding sites has made start-up investments even more accessible. With just a few clicks from a keyboard, users can choose from a range of start-ups and build a portfolio from the ones that interest them, even ones that involve micro-investments!