Having a plan to protect your wealth has never been more important.
There are threats appearing which could change how you manage your:
These could influence your goals and objectives.
The pandemic of 2020 and the impact this has on economies worldwide is certain to have long-term consequences.
The way to deal with this, which we will explore within this video is to put wealth protection at the heart of your financial planning. Doing so is a sensible approach at any time. So the approach and ideas outlined will work during any economic period.
In the UK government finances have been hit very hard, debt, and deficit levels have reached historically high levels.
This suggests that tax rises are likely in the coming years and wealth could be a target.
Property and Investments including investment income, could be areas where rates of taxation go up, allowances are reduced, or new types of tax are introduced.
It is often the case that Governments bring in tax changes by stealth, for example, by slowly increasing the percentage tax rate, freezing allowances or putting caps on tax breaks. This can have a similar effect to the idea of a frog sitting in water which is slowly heated up it. It does not realise it is being boiled until it is too late.
The large level of government debt presents another potential challenge for people planning their finances. One viable way of reducing the debt burden is through inflation. The effects of inflation over time can have a dramatic effect on the true value of the debt. However, the countersign to this is that high levels of inflation can decimate individuals and family wealth.
Tto evidence this look at how much 100 pounds reduces in value over 10 years at these three different rates of inflation:
And now, here are the figures after 20 years:
From a financial planning viewpoint it is sensible to think that the future, the next few years and possibly decades may be very different from the recent past in terms of taxation levels, the type of tax is applied, the level of inflation and also, the entire economic picture.
The art of financial planning is to prepare your finances to cater for all possible scenarios and to protect against those negative aspects that can ravage your wealth. With taxation the best place to start is to ensure you are using all suitable, tax-free allowances and schemes available to you.
Many savings accounts and investments come with tax freedom, more favourable taxation rules applied, but beyond this, there could be many other steps which helps alleviate a tax burden.
These include the way you extract income from investments, the timings of when you take income or any gains and the way you balance out your investments and savings.
Within families it is often possible to reorganise finances through trusts or gifting to help reduce current or future tax payable.
A plan needs to have at its centre, a defensive approach to protect against future tax rises.
Dealing with inflation is another matter altogether. If your wealth does not grow in line with inflation than it is in effect reducing. If inflation does appear at a higher level than we have been used to in recent times, then you may need to structure your savings and investments accordingly.
You should review how your portfolio is structured because there are likely to be some assets that perform well in a high inflation environment and some that do not.
Look closely at all aspects of your finances. For example, the balance between your assets and liabilities as paying down a mortgage may be less desirable in a sustained high inflation world.
Protecting your wealth is not just about considering the wider economic picture, you should constantly be testing your ‘what-if’ questions around your circumstances, considering what happens if you have to retire early, or if you become ill or need care. These are all potential threats to your finances as is the possibility of a family member needing unexpected support.
The financial planning answer to all this is to have a plan that is based on stress testing different future scenarios, looking at as many negative aspects as you can. Things that have the potential to decrease your wealth and to see how your plan is predicted to cope with such threats.
If you spot shortfalls where the plan fails to cater for the unexpected or the undesirable, then you can build in a solution.
The changing pattern of the world around us and the unprecedented events of 2020 suggest that plans should be formed expecting a very different set of circumstances to evolve in the future.
Having a robust financial plan has never been more crucial.
We are here to help you review your position and get the right plan in place to protect your wealth.