Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Every investor wants to see their portfolio holdings produce the best possible returns. Yet, achieving optimal performance can be challenging. Part of the issue lies in knowing what you can and cannot control as an investor.
For instance, you cannot control “macro” variables like inflation and interest rates. However, you have much more influence over your choice of asset classes, specific shares and funds within that wider macro landscape.
Below, we offer six ideas for early-stage investors to help maximise performance in 2024. We hope these insights are useful as you discuss options with your financial adviser.
To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page. For enquiries regarding our latest projects and funding, you can reach us via:
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#1 Consider equities over bonds
Certain asset classes have greater potential to generate investment returns over the long term. For example, cash is widely regarded as a poor asset for building wealth because the interest rate from savings accounts rarely keeps pace with inflation.
Bonds are often better for achieving higher returns – e.g. “lower grade” bonds, which offer a higher coupon to investors (to compensate for the greater risk of default by the issuer).
Equities, or company shares, tend to offer an even greater risk-reward trade-off. This trade-off increases with startups and early-stage businesses, where the growth potential can be exponential (but the risk of failure is greater).
#2 Keep expenses down
The two powerful “hidden” eroders of investment returns are fees and taxes. Keeping these low, however, can be difficult. The UK’s tax landscape is complex and often changes. However, a financial planner can help you navigate this confidently and efficiently.
For instance, perhaps moving to a new pension scheme could maximise your retirement savings. Maybe your early-stage investments would save tax via a scheme like EIS (the Enterprise Investment Scheme) or SEIS (Seed Enterprise Investment Scheme).
#3 Give small companies a look
Many investors instinctively gravitate towards publicly traded companies, such as large firms on the London Stock Exchange (LSE). Whilst these firms can offer a lower-risk approach to equity investing, the growth opportunities are often limited.
This is because established firms—e.g., traditional banks, oil companies, and mining firms—occupy “red ocean” markets. I.e., market boundaries and customers are defined, and businesses try to outcompete each other to take market share.
By contrast, smaller firms (e.g., private businesses and startups) can sometimes occupy “blue ocean” marketplaces. Here, the market boundaries are undefined, and competition is limited or even nonexistent. As such, the business’s growth potential could be very high.
#4 Check your diversification
Which assets, markets and geographic regions are you invested in? Your asset allocation will have a big impact on your performance.
For example, a “cautious” investor (e.g. one heavily invested in gilts) may experience less short-term portfolio volatility during a market downturn. However, they will likely witness lower long-term growth than an investor with an equity portfolio.
That said, putting all of your investment eggs into one basket (e.g., a handful of startups) puts your portfolio at excessive risk. Conversely, spreading your portfolio across too many investments could “dilute” its growth potential.
Here, a financial adviser can help an investor strike an appropriate balance based on their unique variables such as personal financial goals, needs, circumstances, risk appetite and investment horizon.
#5 Rebalance when necessary
The aforementioned variables often change for an individual investor over time. Perhaps your wealth suddenly grows (e.g. due to a business sale), and you are more comfortable taking greater risks to achieve higher returns. This is where rebalancing can be helpful.
Here, an investor adjusts their investment strategy based on updated information, such as a changed investment horizon or a shift in risk appetite. Rebalancing may also be necessary if new data arrives that affects the investor’s strategy.
For example, if interest rates change dramatically, this could require a shift in asset allocation. Lower rates might justify moving more funds into equities and away from fixed-income securities like bonds (newly issued bonds will offer lower coupons in line with lower rates).
#6 Examine value vs growth
One of the longest debates in investing is the “Value vs. Growth” discussion. In short, should an investor seek out firms that are undervalued by the market and buy them “on the cheap” with the expectation of future corrections? Or, should he look for those which offer the greatest potential for growth in revenues, earnings or cash flow?
A strong case can be made for both approaches. However, the pendulum arguably shifts in favour of each option depending on the wider macroeconomic landscape. At present, the US stock market is widely seen as very expensive. By contrast, the UK market is seen as cheap.
Here, startups and early-stage companies can help investors strike an appropriate balance between the two approaches. If publicly traded companies are overvalued, for instance, then private equity could be a great way to access more fairly-priced opportunities which also offer high growth potential.
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Interested in learning more about the exciting startup projects we offer investors here at Bure Valley Group?
Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
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