Risk Summary for Non-Readily Realisable Securities (Shares):
Investing in non-readily realisable securities, particularly shares, carries a high level of risk, as acknowledged by the Financial Conduct Authority (FCA). Here are the key risks associated with such investments:
1. Risk of Losing Your Entire Investment:
When you invest in a business, there is a real possibility that the business may not succeed. In such cases, you stand to lose 100% of the money you invested. It's essential to recognize that most start-up businesses face significant challenges, and many do not survive.
2. Limited Protection in Case of Problems:
Standard protection schemes may not apply to poor investment performance. The Financial Services Compensation Scheme (FSCS) does not cover losses resulting from investment choices. Additionally, the Financial Ombudsman Service (FOS) does not offer protection against poor investment performance.
3. Long Investment Horizon and Limited Liquidity:
Even if the business you invest in turns out to be successful, it may take several years before you can recover your investment. In many cases, selling your investment prematurely may not be an option. The most common ways to recoup your investment are if the business is bought by another company or if its shares are listed on an exchange.
4. Diversification is Key:
Placing all your financial resources in a single business or investment type is a risky strategy. A good rule of thumb is not to invest more than 10% of your money in high-risk investments.
5. Potential Dilution of Your Investment:
If the business issues more shares, the percentage of the business that you own will decrease, potentially reducing the value of your investment. New shares could have additional rights that your shares don't possess, further diminishing your chances of getting a return on your investment.
While this investment is considered high risk, understanding these risks and considering your financial circumstances and objectives are crucial before making investment decisions. For more information and to explore ways to protect yourself, please visit the FCA's official website.
Remember that investment decisions should be made with a clear understanding of the risks involved, and careful consideration of your financial situation and objectives.