What are the benefits and risks of investment?
The world of investments is extensive, and trying to know everything there is to know about investments can get very complicated very fast.
Nevertheless, it is useful to get an idea of some key benefits and risks of investments so you can start investing with a complete understanding of what could go well – and what could go wrong.
What is investing?
Investing is the act of allocating money or resources with the expectation of generating an income or profit. The aim is to buy investments and then sell them for a higher price than what was originally paid.
The four main asset classes are cash, bonds, property, and shares (equities), each coming with their own benefits and risks..
What are the benefits of investing?
The benefits of investing may be better understood as the potential benefits of investing, or rather, the reason people invest relates to the possibility that they will benefit from taking the risk further down the line.
If you make an investment, that investment stands to gain value. If this happens, when you sell it you will make a profit on your original input.
If you have a significant amount of money that you do not need to access in the short-term, investing is a way to increase its value. As you can invest a range of amounts in a variety of different assets for almost any length of time (depending on the investment), many people find that there is an investment option that works for them and their financial requirements.
Aside from the strict gains investors stand to make on their investments, individuals can often benefit from generous tax reliefs offered by investment schemes such as the Enterprise Investment Scheme (EIS). These tax reliefs provide a greater financial incentive to invest in slightly riskier young companies as the extent of the risk to the individual is mitigated.
Investors can also access loss relief under a scheme such as EIS, reducing this risk even further by allowing an individual to offset a loss made on an EIS-qualifying company against their Capital Gains Tax bill or their Income Tax bill.
Some people also enjoy having the knowledge that they have helped finance a company, social enterprise, project, or industry that is important to them and that they see intrinsic value in. This is often why people choose Films4U to invest in films; our rigorous vetting process allows you to invest in a film that has a high chance of turning a profit.
What are the risks of investing?
Investment risks are unavoidable, but the dangers of investing are largely shaped by who is doing the investing and what they are investing in.
The biggest liability is usually when an individual invests more than they could stand to lose should they lose the whole of their investment. This is easily avoidable by a careful look at your finances and asking yourself a few questions regarding what risk levels you are comfortable with.
Aside from this, there are a few types of risk to be aware of when you’re investing:
- Inflation risk – this is the risk of rising prices will undermine an investment’s return through a decline in purchasing power.
- Specific risk – if you invest in individual company shares they are liable to fluctuate and can be affected by an unforeseen event. It’s important to remember that volatility can affect any company. Diversification helps to mitigate specific investment risk.
- Market risk – the possibility that an investor will experience losses due to factors affecting the overall performance of the financial markets. Investing over a longer period of time can help to mitigate this risk.
- Currency risk – if you’ve invested in stock markets outside of the UK, changes in the exchange rate can affect the value of your investments. You can limit this risk by diversifying investment in other currencies and hedging your position.
In addition, many people base their investment decisions on the tax reliefs that they will be eligible for.
Although it is unlikely that government legislative changes will affect your investment, things that you may take as a certainty such as taxes, legislation, rules, and practice are subject to change and should not constitute the whole reason that you decide to invest in a given asset or with a specific scheme.
The risks of investing in film
Although individuals that choose to invest in film often see a return on their investment, it’s not without its risks.
It is important to keep in mind that investors could end up getting back less than their original investment. Share prices and the income they generate through dividends is always liable to go down as well as up. Although we have never failed to make a return through our investments at Films4U, it is always a real possibility that you will never see a return of capital or profit.
Investing in film often requires a large amount of money to be invested, and as it involves a high level of risk, film investment may not be the most sensible option for some individuals. Always remember never to invest more money than you can stand to lose.
It is worth noting that some of these risks are not specific to the film industry, but apply to many other investments as well. For example, film investment is subject to market fluctuations and appreciation in value may not occur, as is the case with other assets. Likewise, a film production company could completely fold, as could any other business, and in such cases, the investor can lose the whole of their investment.
Is investing worth the risk?
In short, yes if you’re a suitable investor for the investment you’re contemplating, no if you’re not. Whether you’re a ‘suitable investor’ largely comes down to whether you can afford to lose the amount of capital you want to invest without having to lower your standard of living.
If an investment means that you would be liable to lose a life-altering amount of money, it shouldn’t go ahead. As we’ve already mentioned, most start-ups fail and business is notoriously unpredictable.
Some people believe they are particularly lucky, or fiercely believe in their methods of selecting fruitful investments. Nevertheless, it remains true that past performance and forecasts are not reliable predictors of future performance, as many people believe.
This isn’t meant to scare you if you’re thinking of investing – it can be a great idea and bring you a healthy return. But it’s important to bring home the fundamental fact that business is based on uncertainties and investments are always a risk.
At Films4U we implement the strictest measures to mitigate as much risk to our investors as possible. This includes putting films through an extensive research and selection process, as we only choose to invest in films that meet our criteria for commercial viability.
What’s more, every film invested in is guaranteed distribution, meaning the film will be seen and generate a return.
We’ve been trusted by investors to bring them consistent returns on their investments, and have enjoyed over 30 years of success as UK film financiers.
We’ve funded over 600 films, and haven’t made a loss to date – just take a look at our past projects.
The information contained on this website should not be taken as financial advice or as a personal recommendation by Films4U. Before investing you should always seek appropriate legal and financial advice from an authorised person specialising in investments of this kind.