While it can be hard to fully quantify the value of the UK investment market, it’s thought that wealth management firms in the UK hold approximately £6.6 trillion across global asset classes.
While there’s a tendency to believe that wealthy people have few financial worries in life, investment assets may be subject to significant volatility and liable to lose value over time.
We’ll appraise the top three challenges facing wealth owners in the modern age while asking how investors can overcome them successfully.
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The 3 Challenges Facing Wealth Owners and How to Overcome Them
We’ve listed the top three most relevant challenges below while asking how wealth owners can overcome these directly in the current economic climate:
#1. Asset Depreciation
We’ll start with a universal challenge, which is posed by market volatility and asset depreciation.
Of course, some assets depreciate at a more pronounced rate than others, although even typically stable and secure stores of wealth such as stocks have seen their values plunge against the backdrop of the coronavirus.
Aviation and hospitality brands have been particularly hard hit, while derivatives such as currency have also depreciated as economies and central banks have implemented so-called quantitative easing policies.
How to Overcome the Challenge:
The key here is to understand the risks posed by market exposure, primarily by diversifying your portfolio and spreading your capital across a broader range of assets (including those that can serve as hedgers). To help achieve this, you may want to partner with expert wealth managers and discuss your asset collection in broader detail).
#2. Litigation and Court Action
If your wealth is largely tied up within a business, this may also be vulnerable to litigation claims from a number of different sources.
From accidents in the workplace to employee challenges relating to unfair dismissal, firms can be subject to costly litigation and compensation payouts if the claim is successful (or they choose to settle out of court).
In the worst-case scenario, this can cause huge financial losses, so it’s important to recognize the risk and put measures in place to tackle it head-on.
How to Overcome the Challenge:
Initially, you’ll need to quantify this risk in relation to your venture, before reviewing the basic corporate measures in place to protect employees and customers alike. We’d also recommend that you have the necessary insurance coverage in place so that you can be proactive in your attempts to safeguard both people and capital.
#3. A Lack of Financial Awareness
Not all wealthy individuals are created equal, as some people inherit large amounts of capital or become millionaires overnight.
In this instance, such individuals may lack core knowledge and understanding of the financial markets, particularly in relation to the appreciation (and depreciation) of assets and the impact of tax liabilities.
Such gaps in knowledge can be highly problematic without assistance, as they leave capital exposed and increase the risk of financial loss over time.
How to Overcome the Challenge:
Quite simply, the best way of overcoming this challenge is through a concerted period of education, as you look to familiarise yourself with relevant assets and core market fundamentals. This will create a solid foundation of comprehension, from which you can begin to manage your assets and fully realize their value over time.
