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Dec 01

How to Build and Maintain Your Wealth

Reading Time: 3 mins

It’s interesting to note that many of the known cases of lottery winners have ended in tears and bankruptcy, with the tale of Michael Carroll offering a relevant case in point.

Incredibly, Carroll won more than £8 million from a single, £1 ticket, despite not having a bank account at the time. However, Carroll lacked the maturity or financial education to manage his suddenly acquired wealth, ultimately declaring himself bankrupt just a few years later.

With an understanding of finance or a focus on expert investment management, wealth can be eradicated quickly, particularly at a time when the cost of living remains markedly higher than earnings.

In this post, we’ll explore the importance of saving and investing, while offering some insight in terms of how you can maintain your wealth.

Why is Saving and Investing so Important?

Saving and investing are different concepts, with the former describing the process of hoarding capital in dedicated bank accounts and accruing a nominal rate of interest in the process.

Conversely, investing is a much higher risk endeavour, and one that typically incurs potential losses but looks to generate higher returns over an extended period of time.

Risk is arguably the single biggest differentiator between saving and investing, although both can play a key role in helping your accumulate wealth. When combined, for example, they enable you to build a diversified portfolio of assets that minimise your exposure to risk and optimise your returns within any given timeframe.

Ultimately, saving and investment can combine to create lucrative and passive sources of income, which can augment your existing earnings and maximise your ability to make money and accumulate wealth towards your future.

This is particular important in the current economic climate, with the UK having seen inflation peak above 11% in October while earnings continue to stagnate and a recession threatens to cause a spike in unemployment.

How to Maintain Your Wealth

Interestingly, the techniques used to preserve wealth or accumulate slowly over time are diametrically opposed to those that help you build it quickly. These include:

  • #1. Diversify Your Interests: As we’ve already touched on, diversification is key to the process of minimising your exposure to risk and loss (depending on the prevailing economic and market conditions). Ultimately, spreading your wealth across a broad range of assets and investments minimises the risk of you losing it all as the markets continue to move, while it also maximises your returns over the course of a typical financial period or year.
  • #2. Manage Leverage and Target Secure Investments: The maintenance of wealth also relies on carefully managed leverage, which can be accessed through assets like forex and enables you to open and control investment positions that are significantly larger than your cash holdings. Similarly, be sure to allocate a fixed amount to bonds and cash, which offer secure and stable stores of wealth that can help you to maintain wealth during periods of recession and austerity.
  • #3. Optimise Passive Income Streams: We’ve already spoken about passive income streams, which are crucial to maintaining wealth as they can be sustained alongside full-time jobs without compromising on your work-life balance. The key here is to target assets like forex where you can invest speculatively and let your capital do the work, while adopting long-term trading strategies may also help you to access more passive returns over time.
DisclaimerMoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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