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Is Your Approach to Risk Serving You or Working Against You?

When it comes to managing your wealth, avoiding risk might feel like the safest approach. Many people believe that keeping savings in low-risk assets like cash is the best way to protect their money. But is this really the case, especially when you look at your long-term financial goals? The way you approach risk today might be limiting your financial potential in the future.

The Comfort of Cash: A False Sense of Security?

Imagine you’ve saved up a substantial amount—perhaps £500,000 in various Cash ISAs. You have a steady income from pensions and feel financially secure. Your immediate financial needs are covered, and you may believe that keeping your savings in cash is the best way to safeguard your wealth. After all, cash is tangible, guaranteed, and free from market volatility.

But is it really as safe as it seems?

When you think about risk, your first concern might be losing money. It’s a natural feeling and one that many share. However, there’s a crucial risk that often goes unnoticed—the impact of inflation on your savings.

The Silent Risk: Inflation

Cash can feel like the safest option, but it carries a hidden risk: inflation. While cash doesn’t fluctuate like investments or shares, its value diminishes over time due to inflation. As the cost of goods and services rises, the money sitting in your savings account buys less than it did before.

In a high-inflation environment, this erosion of purchasing power can be significant. Over time, inflation can eat away at your wealth, often without you realising it. For example, your savings might feel comfortable today, but will they be enough to cover your needs 10, 20, or even 30 years down the line?

Could Inflation Be Threatening Your Financial Security?

Consider how inflation might affect your long-term financial goals. If you are focused on avoiding market risk by keeping money in cash, you may be unknowingly risking your ability to meet future needs. Whether it’s potential care home fees later in life or leaving a meaningful legacy for your family, including grandchildren, failing to address inflation could leave you with a gap in your financial plans.

It’s not just about avoiding loss—it’s about ensuring your wealth grows enough to meet your future needs.

Rethinking Risk: It’s About More Than Avoiding Loss

This brings us to a critical point: managing risk is not just about avoiding losses. It’s about managing the risks that arise from doing nothing or being overly cautious. While protecting your wealth from loss is important, equally important is ensuring it grows at a pace that keeps up with inflation and supports your long-term goals.

It’s essential to recognise that your financial plan should help you meet future needs, not just preserve what you have today. Managing inflation risk, for example, means finding ways to make your money work harder—without taking unnecessary risks.

How Are You Managing Your Financial Risks?

Take a moment to consider how you’re managing financial risks. Are you relying too heavily on cash, thinking it’s the safest option? If so, are you aware of how inflation might be quietly eroding your wealth?

If you’re holding significant cash savings or are unsure how to grow and protect your wealth without taking on unnecessary risk, it may be time for a rethink. There are ways to protect and grow your wealth without exposing yourself to undue risk.

Understanding the full spectrum of financial risk, including inflation, and taking steps to manage them could be the key to ensuring that your wealth supports you throughout your life.

A conversation with a financial planner can help you reassess your approach and develop a strategy that’s tailored to your long-term goals. Managing financial risk isn’t about avoiding it altogether; it’s about understanding the different risks at play and finding the right balance to secure your financial future.

Don’t wait for inflation to silently eat away at your savings. Take control of your financial future today by contacting our team, and ensure that your money works for you now and in the years to come.