Retirement planning is main use of VCTs, 56% of users

Alexland

BritishInvestor said:

And the last decade has been a pretty decent period for returns.

Yeah I'd be happy if my VCT investment(s) only deliver a couple of percent above inflation and charges as that's my overall target for our other investments and most of that is 'in the bag' from the initial benefits from buying the new shares so provided the investments don't go on to overall lose money that's ok. I tend to invest with pretty low expectations.

BritishInvestor said:

it fell by similar amounts to a global equity tracker during market turbulence, whereas a high-quality short/medium duration bond fund tended to remain broadly flat. This (to me) is far more important than correlations in (I assume) benign times.

That's why I said "but they still seem to crash at the same time as other risk assets". I expect a little bit of VC will add some diversification of returns into an otherwise quoted-only equities portfolio as the assets are on a slightly offset return cycle to the large caps that tend to dominate most portfolios.  VCTs tend to have less frequent updates to their NAV which might take the sting from the brief sharp drops that can happen on the very worst days of a market sell-off.

Dead_keen

The first thing I noticed about the document you linked to is that it is far from an independent piece of research.

I'm not going to comment on assumptions about returns but I was surprised by the comment on fees: 

Furthermore, we haven’t said anything about fees. Venture capital generally has higher fees, but we note that this is very much a second-order effect. An extra percentage or two a year will not even offset the tax reliefs, and will definitely not change the message of this analysis

In an earlier post I said:

I had a quick look at some of the EIS funds and the fees are incredibly high. One had a 25% carry on a deal-by-deal with no preferred return and no whole fund carry clawback.    

So taking this as an example, let's say that you invest £100 and that £4 is used to pay the initial fees.  The £96 that's left is then invested equally in four companies.  Three fall to zero.  Oh dear, but that's life.  The fourth increases from £24 to £100.  The performance fee on that is £19.  So you get the £81 that's left.  Yes, you've had tax relief so your net of income tax relief cost is not £100.  The pre-fee return is £104 (and that's also before any annual management fees at the fund or company level).  The post-fee return is £81 (again, ignoring annual fees).  That is not "an extra percentage or two a year".  

This example also ignores the fact that the EIS company has probably had a further dilution of at least 10% (and perhaps 30%) to take account of its own MIP.

MisterNick

In the thread below on the Lemon Fool, the following statement was posted;
I take my dividends as DRIS when available. Just one word of caution, Baronsmead ( and maybe others ) offer a dividend reinvestment Plan (DRIP), where your dividend is used by a broker to buy shares in the market. You will not get income tax relief on such purchases.

I didn't know this (although I don't hold Baronsmead) and without reading back through this thread I can't remember the expectation of posters who recently purchased Baronsmead.

HTH

https://www.lemonfool.co.uk/viewtopic.php?f=25&t=32785&sid=b2bf0fa889283c6892db8256b2bdd114
 

Alexland

MisterNick said:

I didn't know this (although I don't hold Baronsmead) and without reading back through this thread I can't remember the expectation of posters who recently purchased Baronsmead.

Thanks I already knew this about Baronsmead and when subscribing elected not to join their reinvestment plan and just take the cash into a bank account to reinvest as part of larger new investment transactions into whatever makes sense in the future. I also assumed if participating in a DRIP then they might issue new paper share certificates which I couldn't be bothered with. My ambition is just to drain as much cash as possible out of the investment and sell after 5 years.

Alexland

Ok so my £23k from late last month was invested in BVT and 28,330 units were allocated. It's just gone ex-divi today and the sell price has dropped to 70.5p (NAV around 75p) so that's a current sell valuation of £19,972.65 with a 3.5p dividend due of £991.55 and a £6.9k tax refund due.

Once that initial divi and tax refund are in then I will have only invested £15,108.45 (£23k - 6.9k - 991.55) so an initial return of 32% which is better than the 25% bonus we have been getting adding money into our LISA or Tax Free Childcare accounts. Let's see how high fees, widening discount and/or under performance eat away at that early advantage that over the next 5 years...

deltrotter

Reinvest that c£8k and the ongoing dividends into same or other VCTs over next five years and I wonder what it comes to...

It is what I will be doing.

My first ever VCT purchase was in December into BVT.

Alexland

deltrotter said:

Reinvest that c£8k and the ongoing dividends into same or other VCTs over next five years and I wonder what it comes to...

Looking back at Trustnet total return since inception on BVT (C) has performed better than the FTSE100 (D) but worse than the FTSE250 (B) and a World (A) but the US market has been getting expensive in recent years which seems likely to damage future returns. It's a bit of an experement with a modest amount of our investments and I am going to enjoy the circa 7% of NAV (circa 10% of the £15.1k invested) annual dividends landing in my bank account. With all this inflation around it's going to be hard for our family to keep investing such a high proportion of our earnings. I'm undecided if I am going to buy more VCTs next tax year and will take a view later in the year.

deltrotter

Thanks Alexland

My first foray into VCTs was December and I am to follow a five year plan of reinvesting all tax rebate and dividends into more VCTs for the next five years...

Let's see.

The rest of my savings are in US and global trackers

Alexland

deltrotter said:

My first foray into VCTs was December and I am to follow a five year plan of reinvesting all tax rebate and dividends into more VCTs for the next five years...

Have you got your tax relief yet? I'm not in self-assessment so sent HMRC my claim letter in April with supporting evidence, waited the couple of months they ask you to wait then called to find they scanned it then took no further action. They will now assign it to someone and asked me not to chase for a further 8 weeks. I am still hoping to use this money to fill our LISAs this tax year as all our spare earned income has been going into home improvements.

I'm still undecided if I will recycle more ISA money into VCT purchase(s) as my 6 month experience of BVT has been watching it go down, but then by a similar percentage to our global trackers, and the high dividend yield is a nice lifestyle benefit.

Gary1984

My generalist VCTs have appeared to have weathered the storm better than my global trackers. I do wonder if this is perhaps illusory though and due to delayed or overly optimistic NAV calculations.