There has been a lot of talk in recent weeks about the mooted Government savings/investment scheme that will, it is hoped, get people in Ireland to take some of the €170 billion they have on deposit paying next to nothing in interest and invest it in higher-risk but potentially higher-returning products.
Depending on how the scheme is structured, it may unlock more cash being put into vanilla stocks and shares, or perhaps more exotic products. It could also allow retail investors to get a stake in start ups or fast-growing small businesses.
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There are pitfalls though, none more so than what has been highlighted by the sale this week of UK beer company BrewDog.
For years, BrewDog was the hip upstart disrupting the staid world of beer. It built up a big following and was very much the cool kid in the sector.
Given that, it was no surprise that many people put money into the company under its “Equity for Punks” scheme. All told, they invested an estimated £75 million between them from 2009 to 2021.
Alas, the company later hit the skids and a US firm has bought the business at a knock-down price. The Equity Punks have been wiped out.
According to investor service Wealth Club, the Equity Punks did not have access to UK tax incentives that were available to other investors, including venture capitalists.
“Such tax reliefs are aimed at compensating experienced investors for the risk they take in investing in small, high-growth companies,” it said.
“Many fledgling companies will struggle, and by investing in a fund which backs numerous ventures, the risk is spread, given the likelihood that there will be some successes in the pack,” Wealth Club added.
There are lessons for Simon Harris on whatever form the mooted savings scheme here ultimately takes. If the Government wants to encourage people to put their hard-earned savings into investments that could go belly up, they need to be clearly informed of that risk. They also should have the same access to wider tax incentives that bigger investors can get their hands on.
If mom and pop investors, as they are referred to in the US, are to swim with sharks, they need to understand the risks and have access to some sort of life raft.