20 January 2022

3 Things to boost your investment portfolio in 2022

Every year starts with resolutions. Some investors view the new year as a way to start fresh, whilst seasoned investors will be looking at January as a countdown to the end of the tax year and looking for ways to optimise their portfolios and review their performance.

At the start of 2022, there are a lot of uncertainties. It is clear that the pandemic has not gone away. Maybe Omicron is the last stage, maybe not. Meanwhile the chaos caused to supply chains is clearly persistent and very definitely not a UK-only problem, and the willingness of governments to sacrifice economic recovery to public health is understandable but certainly not good for profits. As the economy recovers, the likelihood is that taxes will rise too. Perversely the market seems now to be discounting the likelihood that any company which has won business so far (e.g. in testing) will be able to sustain a commercial advantage. Investors should very definitely also be aware of the diplomatic tensions around Taiwan, Kazakhstan, Ukraine and Eastern Europe. The predominance of headlines about Djokovic’s visa at a time that Russia was in effect invading a third country are not a reflection of the underlying importance of the stories.

Investing in growth companies can look exciting and promising, but investors need to be cautious and have a structured approach to this area of investing. LGB Investments has taken a look at three things investors can do to boost their growth company portfolios this year:

  1. Make the most of your EIS allowance

EIS-qualifying investments offer a tax-efficient way to participate in equity raises for privately owned or AIM-listed growth stage companies. While this offers diversification and the potential for significant capital growth, EIS can also offer up to 30% income tax relief, tax-free growth & income tax relief amongst other benefits.

With the tax year ending in early April, investors still have three months to invigorate their portfolios with interesting new companies, thereby taking part in a company’s growth journey whilst also reaping the benefits of EIS.

Read more about the benefits of EIS here and how LGB clients can access EIS-qualifying opportunities.

EIS is an incentive to invest in early-stage companies, and by definition they carry higher risk than established businesses. An IPO particularly is the start of a journey, and investors need to think about future funding requirements, and not to overcommit at an early stage. LGB Investments selects opportunities based on its core investment themes and investment template, focusing on validation and route to market, credible management, and sustainable competitive advantage based on IP. A tax incentive alone should not be a reason to invest in a company.

  1. Timing is key

Time is more important than price. Investors in growth companies will be offered a number of opportunities to invest in exciting businesses with hockey stick predictions. It is important to assess where a company is in its journey, and how close they are to their breakthrough moment. It may well be worth paying more for a company which has an established business and is cash generative, therefore more in control of its destiny, than for a start-up which still has a long journey ahead if itself.

  1. Diversification is the key to risk management

A predominant factor behind diversification is risk mitigation. This applies not only to the sector choices investors make, as each sector faces its own market fluctuations, but also to the instruments in your portfolio, using debt instruments to complement equity, and investing in both quoted and unlisted shares.

LGB itself practises a barbell approach when it comes to helping clients construct their portfolios, investing in laddered portfolios of fixed income securities to sit alongside equities. We do not claim expertise across the wider scope of large cap or international shares, currencies, commodities or alternatives. There is no shortage of excellent investment advisors in all these areas – but there are very few in the areas LGB specialises in.

Get in touch with us today to discuss how we might be able to assist you in reaching your 2022 financial goals:

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