Many people view themselves as low risk, “careful” investors but engage in behaviour towards the opposite end of the risk spectrum...Crowdfunding, cryptocurrency and self-administered ‘day trading’ all fit into this [very] high-risk category. Yet a surprising number of people are more comfortable with this glorified ‘roll of the dice’ than they are with mainstream investments.

I appreciate a “win” provides ‘pub ammo’, excitement and [almost]instant gratification (the modern disease); but in the case of ‘day trading’, the dealing costs, commissions, and the likelihood of success(certainly to the “normal” consumer) undermine the benefits. Whereas the lack of underlying assets dictates that crypto is a result of “the law of the greater fool”. Essentially, provided someone else is willing to pay more for it- “a greater fool than you” - the investment holds or appreciates in value… it’s built on sand.

Of course, though there is no tangible value to crypto it does have robust demand due to the faceless nature of transactions and the ease in which it can be moved across the globe without regulatory scrutiny. There are legitimate purposes (not known to me) but a significant portion of the value in crypto is supported by the illicit trade between individuals, organisations and states. Europol’s report into the evolution of cryptocurrencies stated that it is a “key tool in laundering money” and that it is “no longer confined to cybercrime activities but is now used for all illicit trade”. It’s worth noting that Russia has been using the currency extensively to fund the war effort according to the FT - no sanctions can be placed on an invisible, traceless entity.

My aim is not to ride a moral steed across the crypto arena- I appreciate everyone’s goals, concerns and values differ – but to high light the nature of the underlying assets and the elements of concern to a typical investor. From a financial planning perspective, I feel there are exciting, engaging and rewarding investments widely available in the UK which benefit from regulation, legitimacy and tax advantages (which assist in mitigating risk).The same sense of investor satisfaction can be gained when the business/portfolio you invested in succeeds and provides a large capital return. Furthermore, Enterprise Investment Schemes (EIS) and Venture Capital Trusts(VCT) provide instant reward by allowing investors to reduce their income tax bill, up-front, by 30% of the sum invested – this should appease modern patience levels.

There have been a host of success stories – including ‘unicorns’ Depop and Cazoo – and the UK is world renowned for leaning into risk and providing the platform for entrepreneurs, R&D and start-ups to flourish. The UK sits fourth in the number of ‘unicorns’ produced – start-ups with a valuation of $1bn or more – and the Alternative Investment Market (AIM) is considered the most successful growth market in the world. I think that’s pretty impressive for a small wet island in the Atlantic!

Job creation, innovation and tax revenue are the economic rewards… and tax breaks, growth opportunities and engagement are the individual’s “wins”. Can your ‘rolls of the dice’ match these outcomes?

Please contact SW Financial Planning if you’d like to talk about your options in more detail.

Rob Cowsill - IFA

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