What are the key risks?
Due to the potential for losses, the Financial Conduct Authority (FCA) considers our company investments to be high risk. It is important that you’ve read and understood the key risks involved before making an investment.
1. Your capital is at risk and returns are not guaranteed
- If the business you are investing in fails, there is a high risk that you will lose your money.
- Advertised rates of return aren’t guaranteed. This is not a savings account. If the borrower doesn’t pay you back as agreed, you could earn less money than expected. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.
- Some investments are secured against assets of the company, however security does not guarantee repayment.
- These investments are sometimes held in an Innovative Finance ISA (IFISA). An IFISA does not reduce the risk of the investment or protect you from losses, so you can still lose all your money. It only means that any potential gains from your investment will be tax free.
2. You are unlikely to be protected if something goes wrong
- Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
- Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
3. You are unlikely to get your money back quickly
- Many of the investments are long term, so you should be prepared to wait for your money to be returned even if the business you’re investing in repays on time.
- You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed.
- You can look to sell your investment through the Abundance marketplace, but there is no guarantee you will be able to sell, or find a buyer at the price at which you are willing to sell.
4. Don’t put all your eggs in one basket
- Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
- A good rule of thumb is not to invest more than 10% of your money in high-risk investments. More information can be found here.
5. Abundance could fail
- If Abundance were to go out of business the administration of your investment could be disrupted and you may be prevented from selling your investment. It could take years to get your money back, or you may not get it back at all. We have plans in place to prevent this, but they may not work in a disorderly failure.