Investing in products aimed at high net worth investors when you aren't one (yet)

stoozie1

Hi,

Just interested really.

I get the impression from reading people's stories on here that some people felt comfortable investing in products aimed at HNWIs when they hadn't quite achieved those figures.

In reflection, do you think this was a good decision (I know it paid off, but would you have done anything differently with hindsight?).

If you use other assets or security which isn't included in the HNWI definition, what are they, and why do you include them?

On the flip side, if you did wait until you fulfilled HNWI criteria, prior to investment, are you please that you did so?

Grateful for any thoughts!

AnotherJoe

Can you give an example of such a product ?

stoozie1

VCTs


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AnotherJoe

stoozie1 wrote: »

VCTs

Just those? They cover a huge range of investment scenarios. From highly speculative to pretty staid.

TheTracker

Flipsider here. Didn't go near such things until I was putting away the full SIPP allowance each year and sheltering money with a ltd company.

There are a whole host of tax reducing options one may take, and in my view vcts are toward the back of the train. It bothers me that based on forum comments they might be construed as some secret sauce, or option to take before exhausting the others.

tacpot12

For "aimed at high net worth individuals" read "aimed at people who might not mind loosing a large chuck of their investment".

While I can't offer the direct experience you seek, as my portfolio (of investments aimed at low net worth individuals) has stabilised, I've started to look at the slightly more risky options. My view is that such products are ok for the retail investors, providing the investor has really investigated the market, the specific investment and the firm and people behind it. Don't buy it until you understand how it works fully. Ideally, you should understand how and why it makes the firm money, as well as how it might perform under a different range of conditions. Be prepared for greater volatility and lower liquidity.

bowlhead99

stoozie1 wrote: »

AnotherJoe wrote: »

Can you give an example of such a product ?

VCTs

VCTs do not require you to have high net worth status. Certain products are not allowed to be promoted to retail investors which means you must be able to certify sophisticated investor or high net worth status. VCT is not such a product, ie it is allowed to be promoted to retail investors without the certifications.

However, the reasons people talk about VCT being suitable for higher income or higher net worth people include:

- relatively high risk underlying investments (early stage companies, limited geographical area)
- illiquid
- long lock-in if you want to keep the tax break on shares you bought as a new issue
- allows high annual maximum investment to still qualify for tax breaks £200k vs £20k ISA or £40k (or less) pension
- income tax relief only usable if you actually have income tax to relieve
- tax free dividends and gains are features also found in more mainstream lower risk products such as ISAs for your first £20k of spare money each tax year


FWIW, I use VCTs but could certify as HNWI investor or sophisticated investor these days, so am not in your position. I did use VCT before I "qualified" as HNWI under FCA (then FSA or IMRO) definitions but having worked in private equity and for large accounting firms I understand what they're all about.

bostonerimus

Tax planning becomes increasingly important as your income increases. Once the ISA and pension thresholds are left behind HNW people need to manage their portfolios to minimize taxation, so many of the investments they use might not be appropriate for everyone. Personally, I use tax efficient index trackers in my regular investment accounts and keep my taxable income low to get tax free allowances

You should never invest in anything you don't fully understand

greenglide

Personally, I use tax efficient index trackers in my regular investment accounts

In the UK there is no such thing as a "tax efficient index tracker".

ISAs are equally tax efficient whether or not the investment in them is a tracker, managed fund or individual shares.

stoozie1

Apologies, I have looked at a few vcts and all mention HNWIs as a condition, so I thought they generally were.

Perhaps I'll look for one that isn't.

Any recommendations?

stoozie1

I personally don't feel that the fsa definition works for us as a couple and would be ok overriding it for that reason, but if there are perceived lower risk VCTs I would be happy to look into those as a possible alternative.