How do I best protect my wealth?

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One of the biggest risks that people face when trying to protect their wealth is inflation. Most have not considered the impact this has on their wealth. Over a 20 year timeframe, at an average inflation rate of 2% pa, your purchasing power is halved or, put another way, your living expenses have doubled. So you need to either re-invest income earned at a rate equivalent to the inflation rate to protect the purchasing power of your capital or invest into assets that grow at least that rate of inflation.

Another risk to your wealth is loss of capital. Most people are well aware of Ponzi schemes and other failed investment schemes that were available in New Zealand?s recent past. You need to mitigate this risk through good reliable research before you invest and then spread your investment eggs across many baskets.

Investing in six different finance companies or banks is not diversification, because if this sector of the economy comes under strain then most companies in this sector are probably going to be affected. You need a wide spread across fixed interest, property and shares both domestically and internationally - maximising the chances of a good outcome and minimising the chances of a bad one. This also provides further protection against specific sectors, eg finance companies, becoming distressed.

Trusts are a legal structure that may help protect your wealth if designed well, so get sound legal advice before going to the expense of setting one of these up.

With careful planning you should be able to structure your affairs in such a way as to protect your wealth throughout your retirement and long after you are gone.