7 Ways to Manage and Grow Your Wealth

Wealth offers freedom, choice, and the ability to live on your own terms. Without a lottery win, inheritance, or a ground breaking business idea, many people feel that real wealth is out of reach.

We would disagree, although overnight success is exceptionally rare. Hard work, consistency and a focus on long-term goals will pay off over a lifetime of investing.

Here are our seven tips for managing and growing wealth.

1.      Build Good Financial Habits

The first step in growing your wealth is developing good financial habits. This will help to create a strong foundation to build from. For example:

• Keeping your expenditure under control
• Avoiding unnecessary and expensive debt
• Making sure your family and health are protected
• Exploring opportunities to earn more income, for example, from a business opportunity or a promotion. Most wealthy people have more than one income stream.
• Making sure you have an emergency fund to cover unexpected bills or periods of unemployment/ill-health
• Investing in yourself – your health, education, development, and professional/social connections

Building good habits leads to more opportunities to create and grow wealth.

2.      Understand Risk

Before you invest, you need to understand risk. This does not necessarily mean ‘danger.’ All successful investors and entrepreneurs understand the relationship between risk and reward – usually, the higher the potential reward, the higher the risk.

There are a few different types of risk when investing:

• Investment risk – the volatility of the financial market
• Liquidity risk – the possibility of not being able to sell your investment
• Currency risk – fluctuating exchange rates can affect the value of overseas investments
• Inflation risk – when the real value of your money doesn’t keep up with the cost of living

While an investment portfolio can manage these risks to an extent, we must also consider the possibility of wider market risks, such as recession and political or legislative change.

There is no such thing as a risk-free investment. The key is understanding the amount of risk you can and should take with your investment portfolio. This will depend on:

• Your risk tolerance and personal attitudes
• The returns you need or would like to achieve
• How long do you plan to invest for
• The amount you can afford to lose without affecting your lifestyle

The risk level of a portfolio will depend on how much is allocated to each asset class and how the underlying assets work together.

3.      Diversify

One of the best ways of managing risk is to hold as wide a range of investments as possible. This should include the four main asset classes (equities, property, fixed interest securities and cash) and potentially some alternative assets. A strong portfolio will also invest in a broad selection of assets within each category. This has the following benefits:

• Different types of investments do not always behave in the same way. For example, where equities fall, fixed-interest securities may rise or remain stable.
• It avoids concentrating too much on any one asset class, region or business sector.
• It allows access to high-growth economies and companies without taking a lot of risk.

Over time, a diverse portfolio will iron out most of the volatility occurring in any one area, as this will be offset by growth in others.

4.      Take Advantage of Tax Benefits

While investment decisions should not be made purely for tax benefits, there are ways of structuring your investments to ensure that you take advantage of the allowable reliefs. For example:

• ISAs are free of income and capital gains tax.
• Pensions offer tax relief on your contributions, as well as tax-free investment growth.- (Subject to the annual allowance, being under 75 and having sufficient relevant UK earnings, or £3,600 limited contribution)
• A portfolio can be managed to take advantage of capital gains exemptions and dividend allowances. This can include allocating funds between spouses to double the reliefs available.
• Investment bonds can be used to defer and control tax liabilities.
• Some higher-risk investments, such as the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCTs) and Alternative Investment Market (AIM) stocks, offer significant tax advantages. However, these are not suitable for all investors.

Limiting taxes can substantially increase the amount invested over time.

5.      Invest Consistently

It’s impossible to know the best time to invest. The market changes constantly, and deferring investment decisions can result in inertia and missed opportunities.

Investing regularly and consistently is one way to grow wealth. This means never having to worry about timing the market or exposing large sums to potential volatility.

By investing monthly, you can benefit from both a rising and falling market. In a rising market, your investments are likely to grow in value. But when prices fall, you can buy more shares at lower prices. This means that when the market recovers again, you will own more shares for your money and will benefit further from the eventual rebound.

If you have a cash lump sum to invest, you can gradually phase it into the market to gain the same advantage.

6.      Consider Costs

All investments have costs, and any charges applied to your portfolio will impact your long-term growth prospects. If an investment is 0.5% more expensive than its competitor, this means that it will consistently need to outperform the other investment by at least 0.5% every year.

Over 30 years, every additional 0.5% in charges can reduce your eventual investment value by around 13%.

While performance is unpredictable, costs are a certainty and can be controlled.

Remember to account for trading costs, platform charges, and advice costs when working out the total investment charges.

7.      Think Long-Term

Investing is a long-term prospect. There are no guaranteed get-rich-quick schemes.

It’s important to bear in mind the following:

• The market fluctuates daily, and investments sometimes lose money. This is simply a fact of investing that needs to be planned for rather than avoided.
• The economy is resilient and cyclical. A diverse portfolio will normally recover and continue to grow, even after a major recession.
• Taking money out early or when the market has fallen can reduce growth potential.
• Compound growth is powerful and can turn a 5% annual growth rate into a return of 165% over 20 years. Reinvesting dividends is usually worthwhile.

Building wealth takes hard work and commitment. We can help you by creating a strong investment strategy and a comprehensive financial plan. The rest is up to you.

Please do not hesitate to contact a member of the team to find out more about how to grow and manage your wealth.

The value of investments can fall as well as rise and is not guaranteed. 

The Financial Conduct Authority does not regulate estate planning

Please note that AIM listed shares are high risk and can fluctuate widely in value.

VCTs are high risk investments and there may be no market for the shares should you wish to dispose of them. You may lose your capital.