Looking after your money takes planning and preparation no matter what stage you’re at. If you are looking to preserve wealth, then there are some key things you need to understand.

We take a look at everything you should know about preserving wealth and why it’s important for you to take action.

What does it mean to preserve wealth?

Preserving wealth is all about protection rather than creation. Creating and building wealth should be your first goal, but then you have to understand how to protect the fruits of your labour.

When aiming for wealth preservation, you’ll take on a more defensive stance with your finances and investments.

Why is it important to preserve wealth?

Unfortunately, protecting your wealth isn’t as simple as piling cash under the mattress. Inflation has the power to depreciate the value of your money over time. If you let it idle, it will depreciate and you’ll be able to buy less with your money over time. The effect of depreciation is even more noticeable on large sums.

So in most cases, it’s best to take a proactive approach when it comes to preserving your wealth. There are also less obvious things to consider. Without wealth preservation know-how, you could also find yourself facing an unattractive tax situation or inheritance tax (IHT) bills in the future.

How can I preserve my wealth?

There are a number of ways you can try and protect your wealth. Let’s take a look at five effective strategies.

1. Investing

Aiming for a small and steady level of growth by investing can be a good way to preserve wealth. Ideally, you will want to try and aim for a return that at least matches or slightly beats the level of inflation.

One good way to try and do this is with dividend stocks. Of course, past performance doesn’t dictate future results. But choosing a dividend aristocrat or a fund that has a history of consistent dividend payments can be a good option for a steady return.

Bonds and gilts may also be worth looking at as they pay a fixed rate of interest. However, they sometimes involve locking your money away for a fixed period.

2. Savings accounts

Traditionally, savings accounts are decent places to park your cash. This is because they’ve usually offered interest rates that beat the inflation rate.

However, this isn’t the case right now as rates are at rock bottom levels. This means that slowly but surely your deposits will lose value over time. But minuscule interest rates may not last forever. Accounts may become more competitive over the coming years, so keep your eyes peeled.

It’s also worth considering that FSCS protection only protects deposits up to £85,000. So if your balance is over that amount, your money could be at risk. For that reason, it may be worth spreading your savings across a few accounts. Using a cash ISA can also help simplify your tax situation.

3. Insurance

Many people overlook insurance as a way to preserve wealth. Along with being a potential way to create wealth for your family, a comprehensive policy can be an excellent way to protect your assets should something happen to you.

An insurance policy can also be used to help support you if you became ill. This would help to prevent all your wealth from being eaten up by medical bills and livings costs if you or your family can no longer work.

4. Marriage and wills

You don’t have to rush out and tie the knot. But if you’re in a long-term relationship, it’s worth considering the legal and tax benefits of marriage. Having a partner can be beneficial when managing wealth for a number of reasons.

It’s also a good idea to think about whether you need a will. If the worst happened, if you have a will, your wealth could be distributed and preserved appropriately. Getting all of this in order can also help with your estate planning.

5. Speak to a professional

Wealth management and looking after everything yourself can be a lot of work. If you’re serious about preserving your wealth then it could be worth speaking to a financial adviser.

They will be able to assess your situation and advise you on the best course of action to take to achieve your goals and protect your money in an efficient way.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does is constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

The post How can I preserve wealth? appeared first on The Motley Fool UK.

More reading

• Here’s how Rolls-Royce shares could climb another 50%… or fall 20%!
• How I invested my first £1,000 in FTSE shares… and the mistakes I made
• How to invest £290 a month in UK shares for an income that aims to beat the State Pension
• Aviva’s share price has left rivals in the dust. Here’s why it’s still good value
• 2 excellent investment trusts to consider for an ISA or SIPP