Whether it’s investing in property, boosting high-interest savings, or securing a raise at work, the drive to improve our quality of life means we’re all in the business of building wealth. With enough time, you can strengthen your financial position with various assets, pushing up your net worth.
But increasing your assets and earnings is just the beginning. Unexpected life events, poor planning, and macroeconomic factors all have the potential to significantly derail finances.
For this reason, wealth protection is an essential part of not just improving your net worth, but keeping your quality of life where you want it. In this guide, we’ll explore how to protect wealth against the unexpected (such as inflation) and provide an outline of the top wealth preservation strategies and how they relate to different life phases, up to and including estate planning.
What is wealth protection?
The practice of shielding or insuring financial assets, earnings, and deposits against events that reduce their value. It’s also sometimes referred to as wealth preservation.
How to protect wealth
You can use various wealth preservation strategies to legally protect your assets. These include setting up and managing:
- emergency funds
- estate planning
- retirement contributions
- tax planning
- inflation plans
- diversified investments
Diversification is key to building long-term wealth. But it’s important to master the basics first. Otherwise, your wealth could be built on an unstable foundation.
Effective wealth protection starts with cash
One of the first assets that people build in relation to wealth is their savings. In her book ‘What They Don’t Teach You About Money’ FT Money Editor, Claer Barrett, explains why:
“The amount of interest you’d pay to borrow money in an emergency is much higher [than you’d lose with savings] (think 20 percent for a credit card, or 40 percent for an overdraft).” – Claer Barrett, Author, ‘What They Don’t Teach You About Money’
Financial influencers such as Vivian Tu are pushing this idea on social media to their followers, leading younger people to start building and protecting their wealth through cash deposits first.
Beyond setting up an emergency fund, a firm understanding of risk is helpful when assessing other routes to protect wealth.
The interrelationship between wealth and risk
As with every financial instrument, there is a direct relationship between wealth and risk. No one can predict the future, which means countless events can complicate your path to wealth. In general, the higher the reward involved in a financial practice, the greater the risk of losing what you invest. Keeping your exposure low is known as minimising risk. Risk is unavoidable. It’s the reason why it’s best to have several strategies to build your wealth, rather than relying too heavily on one approach.
Risk isn’t always bad
It’s worth pointing out that risk doesn’t have to be bad. Combining high and low risk strategies can help balance good returns with robust protection. Assessing risk can be a challenge, so where do you start when considering how to protect your wealth?
Comprehensive financial planning protects your wealth
Taking a long-term view is important for wealth growth and risk management of your finances.
In this section, we’ll cover the top economic challenges affecting wealth. We’ll also list four of the most expensive life events and why they pose their own wealth protection problems.
The top economic threats to wealth
There are two kinds of macroeconomic factors that can hurt your wealth:
- Economic conditions: Currencies are in permanent flux, losing and gaining value in response to economic performance (productivity, the rate of growth) and government or central bank policy (national debt and interest rates).
- Financial market risks: Asset valuations are also volatile, so you could pay more for an investment than you get back.
Next, we’ll explore two of the greatest threats to building wealth relating to economic conditions: inflation and tax rises. We’ll also explain how market volatility can negatively impact your future finances.
1. Inflation and interest rates
Inflation refers to the rising price of goods and services, eroding the purchasing power of a currency. The rate of inflation (measured as a percentage increase) can affect your wealth, especially if you hold cash deposits in low-to-no interest accounts.
A recent report commissioned by Flagstone, found that two thirds of the UK public have savings accounts with the same bank that holds their current account. High street banks control over 85% of the UK’s savings accounts, despite offering some of the lowest interest rates on the market.
If the rate of inflation is higher than the interest rate on your savings, you’re effectively losing money over time.
There are ways to protect wealth against inflation. For example, if you place cash in high-interest savings accounts, the value of your deposits can grow faster than prices rise. This can offset your losses, provided you find the most competitive rates at a higher percentage than the rate of inflation.
High rates of inflation are usually temporary. But the Bank of England considers a small amount of inflation (2%) economically beneficial. The Bank of England aims to control the rate of inflation by raising or lowering interest rates.
Learn: Understanding inflation, the base rate and GDP
2. Tax rises
Changes to tax law are common, especially when a new political party comes to power. In the UK, the Chancellor’s biannual budget speeches set out government updates to financial rules.
Depending on your financial portfolio, you could end up paying more tax in future than you might expect.
The government also incentivises the public to save or invest with tax law. Taking advantage of those opportunities as much as possible is known as ‘tax efficiency’.
This is not to be confused with tax avoidance, which is a criminal activity.
Tax law can be confusing, so consider speaking to a Financial Adviser to ensure you're taking advantage of all available tax reliefs and allowances.
Discover: the different types of financial adviser
3. Market volatility
The value of companies can also have a direct impact on how you build wealth. If you invest in the stock market to diversify your portfolio, economic shocks that alter the price of shares will cause your wealth to fluctuate.
Market volatility can be an opportunity to grow wealth. If you can invest in a downturn, you may be able to buy shares in valuable companies at a lower cost. You could earn a significant return on your investment when the market recovers.
But this relies on a company recovering its value, which isn’t guaranteed. If a business does badly enough in a recession it could go bankrupt, and you’d lose the money you invested.
Explore: how to minimise risk in your investments
Four expensive life events and the risks to your finances
1. Health emergencies
There’s never a good time to suffer a serious illness. But the consequences are much worse when you don’t have financial contingencies in place.
Long-term conditions can be expensive, particularly if significant adjustments have to be made to your home. According to a 2024 report, people with disabilities and long-term illnesses tended to have lower financial wellbeing.
Long-term illnesses also complicate the risk management of your finances. The problem is that you may feel so overwhelmed dealing with the illness that you lose track of your wealth, failing to take advantage of changes in the market.
2. Helping with housing deposits
It’s no secret that the housing market has become more competitive in the UK in the last two decades. Deposits for mortgages commonly run into six figure sums that can be a challenge for young professionals to afford.
As a result, more parents than ever are gifting significant money to their children to help out.
3. Babies, marriage, and separation
Raising a family is a goal for many people, but it can be costly. Major life events like having a baby often mean you might need a bigger home. Parents might also help with their children’s wedding expenses to ease the financial strain. And there’s always the chance that your own marriage may not work out.
Separations can be particularly stressful financial events. No one likes to think about it, but a clear picture of your wealth is essential to staying prepared.
4. Retirement
These days, it’s more common to work for several employers over the course of your working life. A recent study found almost one in 10 savers aged 35-55 have five or more pension pots, splitting their totals across multiple providers.
This means that your retirement savings could be earning less interest than you might like. But there are risks involved with combining your pensions and deciding to manage them on your own.
5. Passing on
Whether its sudden or not, you can unintentionally create problems for your loved ones when you pass away. Aside from funeral costs, without a solid will and testament, you could struggle to leave the financial legacy you want.
Expecting the best, preparing for the worst
Getting a clear overview of the main risks to your wealth is the first step. But how do you turn awareness into a comprehensive wealth preservation strategy?
Strategies for effective wealth protection
Proactive financial planning protects your wealth for the years to come. Below, we explore seven strategies that can help safeguard your assets for the long term.
1. Spreading the risk: why diversification matters
In a nutshell, diversification means spreading your investments across different asset classes to reduce risk. The logic is simple: if one investment underperforms, others might do better, balancing the final outcome.
Yet, despite its effectiveness, many people still lean too heavily on one or two asset types. A well-diversified portfolio should include a mix of cash, stocks and shares, bonds, and property to ensure long-term growth while managing risks.
discover: Building a diversified portfolio
2. The importance of rebalancing your portfolio
A diverse portfolio is only half the equation. As markets shift and your personal circumstances change, so should your investment strategy. Regular portfolio rebalancing ensures that your investments remain aligned with your goals and risk tolerance.
Failing to adjust your portfolio could lead to unexpected losses. For example, investments that were once considered low-risk could turn volatile in the future. Rebalancing helps you manage risk and keeps your wealth protection strategy on track. It’s not about making drastic changes, but rather small adjustments that keep you on course.
LEARN: What to know before rebalancing your investment portfolio
3. Tax tactics to keep more of what you earn
Take advantage of tax-free savings and investments, so you don’t end up paying more tax than you need to. The government incentivises savers to grow their cash by offering tax relief on several types of accounts and exemptions. These include:
- Individual Savings Accounts (or ISAs)
- Personal Savings Allowance
- Personal Allowance on your pension
- National Savings and Investments (or NS&I)
- Capital Gains Tax allowance
- Junior ISAs
It’s not just about reducing your next tax bill. It’s about setting up structures that will continue to shield your wealth as it grows.
The tax landscape evolves regularly, and failing to keep up with these changes can be costly. Staying on top of current tax laws, allowances, and reliefs is a smart way to ensure your wealth thrives in an ever-changing tax environment.
Read our guide: tax-efficient retirement planning
4. Rainy day reserves: building an emergency fund
Emergency funds prevent you from dipping into long-term investments or selling assets at inopportune times. Ideally, an emergency fund should cover three to six months of living expenses. This safety net allows you to keep growing your wealth, even with life's unexpected twists.
5. Insuring your wealth and wellbeing
Insurance is an essential element of wealth protection. Life insurance, critical illness cover, and disability insurance can protect your family’s wealth from unforeseen events that could otherwise cause financial strain. But beyond personal insurance, insuring valuable assets – whether that’s property, art, or classic cars – can be equally as important.
Ensuring your policies are up-to-date and reflect your current situation plays an essential part in protecting your wealth for future generations.
6. Passing on wealth: the role of trusts
One of the most powerful tools for preserving wealth across generations is estate planning. Setting up trusts helps you protect your assets with tax-efficient solutions, potentially avoids the lengthy probate process, and offers protection against creditor claims.
Trusts also give you control over how and when you distribute assets, ensuring they benefit your heirs according to your wishes. Meticulous planning can mean the difference between a smooth transition of wealth and a legal quagmire for your family.
A guide to family wealth management
7. The value of a Financial Adviser
Even the best strategies can fail without expert guidance. A Financial Adviser can help you create a tailored plan that considers your personal goals, tax situation, and risk tolerance. They can also help you stay on top of changes in the financial landscape, preventing costly mistakes.
How to choose the right Financial Adviser
These strategies lay a solid foundation for protecting your wealth, and diversification plays a key role. To help you implement this, we’ll now turn our attention to building a diversified portfolio, complete with actionable examples.
Building a diversified portfolio with examples
It’s common when researching finance to hear about a ‘diversified portfolio’. But understanding what it means for you is often less clear. In this section, we’ll explain what we mean by a diversified portfolio, offer practical examples of how you build one, and identify why it’s such an important component of wealth protection.
What does a diversified portfolio involve?
At its most fundamental level, a diversified portfolio is a range of financial products that spreads your risk. Diversified portfolios can better absorb unexpected shocks because even if one asset is compromised, you still have other routes to build wealth.
How to build a diversified portfolio
There isn’t a right or wrong way to build a financial portfolio, but it makes sense to consider what’s realistic given your financial priorities.
Diversification isn’t just about investing in a range of asset types. Within each asset, you can further spread your risk with variety.
One clear example of this is in stocks and shares, where investing in companies of various operating sizes, servicing different industries, and with alternate market caps, makes for the most robust investment strategy.
Cash is also increasingly seen as an asset, considering high interest rates that can earn meaningful returns, depending on the savings account. By depositing significant cash across various accounts, savers can broaden their FSCS protection.
This insures you against a worst-case scenario where multiple financial institutions go bankrupt, which almost happened in 2008.
Asset allocation strategies for wealth protection
There are competing schools of thought as to the ideal balance for your investments when deciding how to build a diversified portfolio.
The essential factor to consider is how much risk you want to take on, against the amount of money you’re prepared to invest. For example, when investing you might put 60% of the money into stocks (which are usually more volatile) and 40% into bonds (a lower, but generally safer, return). This is known as a 60/40 approach.
The key to sound investing, according to wealth adviser Amy Goodall-Smith, is consistency: 'It’s not about timing the market. It's about spending time in the market.'
Below, you can see an example of a range of assets that can form the foundation of a diversified portfolio.
Diversified portfolio example
Here’s an example of a broad range of assets that would constitute a diversified portfolio:
- Cash: In a high-interest environment, cash deposits can earn inflation-beating returns, provided the money is placed in the most competitive accounts. With easy access accounts, it’s also possible to take advantage of sudden changes in the market, so you can get the best prices when they arise.
- Property: House valuations have risen dramatically over the past few decades, pushing up the equity of these investments.
- Stocks and shares: Purchasing shares and selling them at the right time can net a substantial profit.
- Bonds: These fixed-income investments, providing a loan to a business or government, offer regular interest payments that can act as a buffer during periods of market volatility.
With this in mind, how does each asset class interact with risk?
Assessing your risk, asset by asset
As mentioned previously, any asset with earning potential invites an element of risk. How you manage that risk over the years is crucial to your overall net worth.
Let’s explore the risks you can expect to encounter based on the diversified portfolio example above:
- Cash: If deposits are held in low-to-no interest accounts, cash will lose its value over time. When interest rates change, so too will the amount of money you can make.
- Property: With first time buyers struggling to get on the housing ladder, potential changes to government policy could significantly alter the value or returns on property, particularly second homes held as an asset class.
- Stocks and shares: Businesses can gain or lose their value rapidly and without warning, which is why investing in a fund (a collection of businesses grouped together, managed by a private entity) is sometimes seen as a lower risk alternative.
- Bonds: It’s possible for companies and (in rare cases) governments to default on their debts, which means they don’t pay back what they owe.
Although spreading your risk with a diversified portfolio is universally good practice, the ideal balance and scope of what this looks like is likely to vary depending on your age and life stage.
Wealth protection at different life stages
Wealth protection can mean vastly different things depending on your stage of life.
For example, people in their early careers have lower salaries, giving them less money to invest. This limits where they can put their money compared to more mature savers, who’ve had time to diversify their portfolios and benefit from compound interest.
For some savers, generating wealth over the course of their career is a means to create a legacy for their families stretching beyond their own lifetimes. This is known as generational wealth.
If you’re looking to build generational wealth, it’s useful to map out your priorities and set realistic expectations for your financial investments.
How to build generational wealth over time
Your exact approach to building generational wealth will vary depending on your circumstances.
In the example below, we’ve mapped out how Paul, a 26-year-old just starting out in their career, might tackle creating wealth.
Early career
With limited disposable income, Paul focuses on setting good habits. The principal of ‘little and often’ starts to set him up for success in the long-term by:
- comparing different financial products, like savings accounts, to find the most competitive rates
- starting small, setting up automated saving and investing on the same day he gets paid
- getting cash savings to cover at least three months of expenses, up to three months’ salary when he secures a raise at work
Mid-career
At this stage, Paul has benefitted from several years of experience in his chosen field. Higher earnings allow him to expand his investments, spreading his risk as he manages his finances carefully by:
- diversifying his investments, setting money aside for higher-risk, higher reward assets
- prioritising platforms that simplify portfolio management and visibility, such as a cash deposit platform
- maxing out pension contributions to take full advantage of tax relief incentives
- thinking about when he wants to retire and using a pension calculator to check he's on track
Pre-retirement
Heading into retirement, Paul’s tolerance for risky investments drops. He has less time to course-correct if he ends up losing money. It’s also a good time to start thinking about the younger generation, as his children are getting older now. This leads Paul to start:
- transitioning to more conservative investments, such as bonds or cash
- planning his retirement in detail
- writing his will to pass on his wealth to younger generations
Post retirement
As Paul enters his golden years, his priorities shift again to maximise wealth preservation. He increasingly starts to think about passing the torch to the next generation. At this point, he focuses on:
- honing his wealth protection strategies
- using his pension for retirement income
- considering his legacy, including investing in philanthropy, and updating his will to reflect changes to his wishes
Many people want to leave their families in a strong financial position for the future. To do this, plan how you'll transfer your wealth in advance. This is called estate planning.
Transferring wealth to the next generation – key considerations
Planning how to manage and pass on your wealth can feel overwhelming. No one wants to confront worst-case scenarios. But for your peace of mind and that of your loved ones, it’s vital. You might also consider supporting younger generations by gifting assets now. This can provide immediate support and make sure your wealth benefits your family sooner rather than later.
Estate planning ensures administrators manage your wealth according to your wishes, even when you pass on. Let’s look at what inheritance planning is, its benefits, and the key factors you’ll need to consider.
What is a wealth transfer strategy?
A wealth transfer strategy involves planning how and when to pass on your assets to your beneficiaries. It protects your legacy and minimises tax obligations. Key elements of your strategy should include setting up trusts, making lifetime gifts, and exploring tax-efficient investments.
Benefits of a wealth transfer strategy
A well-crafted strategy:
- minimises tax liabilities – preserving more of your wealth for your heirs
- guarantees assets go to the right place – you can control how and when your assets are received, preventing potential family disputes
- avoids probate delays – trusts can streamline the process and bypass the often lengthy and costly probate
- provides financial security – structured planning supports loved ones with ongoing financial needs
- protects against risks – a robust strategy can shield your assets from creditors or legal claims
- helps with family communication – estate planning manages expectations and guides you through sensitive conversations
A phased approach to wealth transfer
Instead of transferring all your wealth at once, consider distributing it in smaller, incremental amounts. Take advantage of annual gifting allowances, establish trusts, and use various financial tools to spread out transfers.
This approach can support your heirs with pressing financial challenges, such as funding education or buying a home, while also lessening the impact of Inheritance Tax.
Wealth transfers can skip a generation
In some cases, by the time you’re ready to transfer your wealth, your children may already have achieved financial independence. If that happens, it might be more beneficial to pass your assets onto your grandchildren.
Pensions aren’t legally included in your estate, and therefore don’t count as part of your will. This makes them a strategic tool for passing on your wealth. By preserving a private pension and drawing from other savings, such as ISAs during retirement, you can leave a tax-free nest egg for your grandchildren.
Learn more: Family wealth management
Five key considerations for your wealth transfer strategy
1. Write and review your will
A will is the cornerstone of estate planning, dictating how your assets will be shared after your passing. Without a will, intestacy laws will decide how your estate is divided, which may not align with your wishes.
Regularly review and update your will – especially after major life events like marriage or the arrival of a child.
2. Set up trusts
Trusts allow you to choose how your assets are managed and shared, even beyond your lifetime. They’re designed to protect your estate from risks, such as family disputes or financial mismanagement. Placing your assets in a trust ensures they’re distributed according to your wishes.
Read more: The different types of trusts and taxes
3. Reduce tax liabilities
Strategic planning can help you keep more of your wealth where you want it. Gifting to family members or charitable causes is encouraged by tax law, with various allowances and exemptions available, including:
- making gifts more than seven years before death
- using annual gift allowances
- placing life insurance in a trust
- using tax reliefs such as Business Relief or Agricultural Relief
- leaving gifts to charity in your will
- passing on a family home to you husband, wife, or civil partner
Read more: Make saving to leave an inheritance work for you
4. Invest in life insurance
Life insurance provides financial support through a lump sum payment upon your death. This payout can cover immediate expenses and support your family’s financial stability. Decide between an individual or joint policy based on your needs and preferences to ensure your family is well-supported.
5. Educate heirs
Ensuring that the next generation understands financial management and the responsibilities that come with inheriting wealth can prevent future conflicts and mismanagement. Setting up family meetings and teaching financial skills can help instil shared values and skills.
By implementing these strategies, you’re not just preserving wealth – you’re laying the groundwork for a resilient legacy. Effective planning and education create a solid foundation, ensuring that your family's financial wellbeing is both protected and prosperous.
How to protect wealth long into the future
Safeguarding your wealth is every part as important as acquiring it in the first place, especially if you’re looking to pass on a financial legacy to the next generation. Starting now is the best way to protect your wealth far into the future.
Effective wealth protection requires a careful curation of financial strategies, from diversifying your investments to setting up an emergency fund. While life’s uncertainties are inevitable, proactive measures like these can help you manage potential risks.
By keeping track of how your assets perform in a diversified portfolio, you can confidently grow your net worth over time.
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Cash is an essential component of any well-rounded portfolio.
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