TL;DR: Investing business cash isn’t risk-free. The main risks to be aware of are market risk, currency risk, interest-rate and credit risk on bond holdings, inflation risk on cash that isn’t invested, liquidity and settlement risk, and concentration risk. These are the standard risks that come with investing in markets, and they can be managed by matching the time horizon of the money to the volatility of the investment, diversifying, and keeping enough operating cash outside the portfolio.
Leaving company cash in the bank feels safe, but it isn’t without risk. If the interest rate isn’t up to scratch, inflation quietly chips away at the real value of the cash every year.
Investing that cash gives it the chance to grow, but introduces a different set of risks. This article walks through what those risks actually are, and how businesses can set up to manage them.
This isn’t meant to scare you out of investing or to trivialise the risks. It’s to make sure you go in fully informed and ready for the ups and downs.
1. Market risk
Market risk is the simple, unavoidable fact that investments can go down as well as up. Equity markets in particular can move sharply over short periods. Falls of 10–20% in a year aren’t unheard of, and deeper drawdowns happen occasionally during crises.
If the business has to sell during a downturn, those losses are crystallised. If it can leave the money invested through the cycle, history suggests markets tend to recover and grow over longer time periods, though past performance is never a guarantee of future results.
How to manage it
- Match the time horizon of the money to the type of investment. Money you might need in the next year shouldn’t be in volatile equity ETFs.
- Diversify. A global equity ETF spreads risk across thousands of companies and dozens of countries, smoothing out the impact of any single market or sector.
- Use regular investing (with InvestEngine Savings Plans) to invest gradually rather than committing a large lump sum on a single date.
2. Currency risk
Many of the ETFs available through InvestEngine hold assets denominated in currencies other than pound sterling – US shares, European bonds, global indices, and so on. Even if the underlying holdings perform well in their local currency, exchange-rate movements can add to or subtract from the return when measured in pounds.
How to manage it
- Some ETFs offer GBP-hedged versions that strip out most of the currency exposure. These can be useful for shorter time horizon cash or for businesses that want more predictable sterling returns.
- Over long horizons, currency moves often smooth out, but they can be a meaningful factor over shorter periods.
3. Interest-rate and credit risk
These apply to bond ETFs, which are generally less volatile but come with their own risks.
- Interest-rate risk. When interest rates rise, the market price of existing bonds usually falls (and vice versa). Longer-dated bond ETFs are more sensitive to this than short-dated ones.
- Credit risk. This is the risk that a bond issuer can’t pay back what it owes. Government bonds from major economies are generally seen as low-risk; corporate and high-yield bonds carry more credit risk in exchange for higher potential yields.
How to manage it
- Match bond duration to your time horizon, so use shorter-dated bond ETFs for shorter time horizon money.
- Spread credit risk by holding diversified bond ETFs rather than a small number of individual bonds.
4. Inflation risk
This one comes at the problem from another angle – it’s the risk of not investing. Cash sitting in a business bank account loses real value every year that inflation is higher than the interest rate the bank pays.
Leaving cash in a 1% interest account while inflation runs at 3% is worth significantly less in terms of purchasing power over time.
How to manage it
- Keep operating cash in the bank, but consider whether all of the company’s surplus really needs to be there.
- Investing some portion in markets gives that money a fighting chance of at least keeping pace with inflation over the long term, though that comes with the market risks already covered above.
5. Liquidity and settlement risk
Investments in a Business Account are pretty liquid, in the sense that ETFs trade every working day. They aren’t, however, instantly available to spend. From placing a sell order to cash landing in the company bank account typically takes 4–5 business days (T+2 settlement plus a UK bank transfer).
In rare cases like extreme market stress, broker issues, or operational problems, settlement can take longer than usual. InvestEngine’s risk disclosure flags this explicitly: it’s not recommended that customers invest funds they need to pay imminent bills or meet other near-term obligations.
How to manage it
- Keep enough operating cash outside the investment account to cover near-term obligations (payroll, tax bills, suppliers).
- For money that might be needed in months rather than years, lower-volatility holdings like Overnight Rate or short-dated bond ETFs can reduce the impact of having to sell at a bad price.
6. Concentration risk
Concentration risk is what happens when too much of a portfolio is dependent on the performance of a single thing. Whether it’s one country, one sector, one company, one asset class, if that thing has a bad run, the whole portfolio feels it.
How to manage it
- A single global equity ETF already provides significant diversification, with thousands of companies across dozens of countries and sectors.
- Adding a bond or Overnight Rate ETF blends asset classes that often behave differently to equities.
- Be wary of over-weighting any single thematic ETF (AI, clean energy, a single country) unless that’s a deliberate, well-understood choice.
7. ETF-specific risks
ETFs themselves come with a few risks worth knowing about:
- Tracking error. An ETF may not track its underlying index perfectly, due to costs, sampling, or fund management decisions.
- Bid-ask spread. This is the gap between the buying and selling price on the exchange. Highly liquid ETFs usually have very tight spreads; less-traded ETFs can have wider ones.
- Annual fund costs. Every ETF charges an Ongoing Charges Figure (OCF), which is paid out of the fund’s assets and reduces returns over time. These costs are separate from any platform fee.
How to manage it
- Many investors choose established and liquid ETFs from large providers (Vanguard, iShares, Invesco, Xtrackers, J.P. Morgan, etc.) although suitability will depend on the business’s objectives and circumstances.
- Check the OCF before adding an ETF – small differences compound meaningfully over long horizons.
8. Tax risk
Tax rules, like Corporation Tax rates, dividend treatment, capital gains, allowances, can change. What’s tax-efficient today may be less so in future. A Business Account is a General Investment Account in the company’s name, so all income and realised gains feed into the company’s Corporation Tax position.
How to manage it
- Use the year-end Consolidated Tax Certificate and Capital Gains report provided by InvestEngine.
- Speak to your accountant for tailored advice, particularly around timing of realisations, use of losses, and the company’s wider tax position.
9. Platform and operational risk
Any investment platform comes with operational risks. These include outages, errors, and processing delays. InvestEngine is authorised and regulated by the Financial Conduct Authority (FRN 801128), and assets are held in custody separately from the company’s own balance sheet.
Client money and investments are eligible for protection under the Financial Services Compensation Scheme (FSCS) up to the relevant scheme limits, subject to eligibility – coverage depends on the size and circumstances of the business. Importantly, FSCS protects you if the platform or custodian fails, it does not protect against losses caused by market movements.
Bringing it all together
None of these risks are unique to InvestEngine. They’re the normal mechanics of investing in financial markets. The point isn’t to eliminate risk (you can’t), but to manage it sensibly:
- Match the money to the horizon. Short-term cash stays in the bank or in low-volatility ETFs. Long-term surplus can take on more market exposure.
- Diversify. Across asset classes, geographies and individual holdings.
- Keep costs low. Lower OCFs and platform fees leave more of the return in the business.
- Don’t invest money you can’t afford to see fall in value temporarily.
- Review periodically. Do this at least annually, with your accountant or adviser, to make sure the portfolio still fits the company’s needs.
FAQ
Can my business lose money?
Yes. Your capital is at risk when you invest. The value of an ETF portfolio can fall as well as rise, and the business may get back less than it invested, particularly over short time periods.
What’s the worst-case scenario?
In a severe market downturn, a diversified ETF portfolio could fall significantly (historically, falls of 20–40% have happened in deep equity bear markets). Diversifying across asset classes and matching investments to time horizons can reduce (but not eliminate) that risk.
Is investing in ETFs riskier than holding cash?
It’s a different kind of risk. Cash has very low short-term price risk but loses real value to inflation over time. ETFs can move around in value day to day, but historically have grown faster than inflation over the long term. Neither is risk-free, they’re just exposed to different risks.
Are bond ETFs low-risk?
They are lower-risk than equity ETFs in most cases, but not risk-free. They’re exposed to interest-rate movements and (for corporate bonds) credit risk. Short-dated government bond ETFs and Overnight Rate ETFs tend to be the lowest-volatility options.
How is risk different for a business compared to an individual?
The underlying market risks are the same. What changes is the tax treatment (Corporation Tax rather than personal CGT/Dividend Tax), the lack of an ISA-style wrapper, and the fact that the money sits on the company balance sheet and is reported through company accounts.
What happens if InvestEngine itself goes out of business?
Client assets are held separately from InvestEngine’s own balance sheet and would not be available to InvestEngine’s creditors. Eligible clients are covered by the FSCS up to the relevant limits. Again, FSCS doesn’t cover market losses.
In summary
Business investing isn’t risk-free, and any content that suggests otherwise should be treated with suspicion. It is, however, a well-understood, well-regulated way to put surplus company cash to work.
The main risks can be sensibly managed through diversification, time horizon matching, and keeping enough operating cash outside the investment account. For anything specific to your business, speak to your accountant or a qualified financial adviser.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
FSCS protection depends on the business’s eligibility and circumstances, and does not cover losses due to market movements. Tax treatment depends on individual circumstances and may be subject to change.
This communication is provided for general information only and should not be construed as advice – speak to your accountant or a qualified adviser for anything specific to your situation.