Simon Beal and Richard Pemberton, both senior investment directors at Westminster Asset Management, tell JEP Business why the distinction between building wealth and maintaining wealth emerges as one of the most important – and often least appreciated – questions in private-client investment
BETWEEN them, Simon Beal and Richard Pemberton, senior investment directors at Westminster Asset Management, bring many years of experience advising wealthy individuals, families and trustees.
Their perspective is practical rather than theoretical: the right investment approach depends not only on how much capital someone has, but on how that capital was created, what it is required to do and how easily it could be replaced.
Both agree that the distinction matters because the circumstances that create capital are often difficult to repeat. A business may only be sold once. Savings made over a career cannot be repeated. Inheritance may arrive unexpectedly. A divorce settlement may represent a financial reset rather than a return to an earlier pattern of earnings.
Once that capital exists, investors often become anchored to the starting value: “I sold my business for £5 million”, “I inherited £2 million” or “this is the capital I cannot afford to lose”.
Pemberton begins with the accumulation phase.
“When an investor is still building wealth,” he says, “the task is to make proper use of the risk budget available to them.”
That budget is not simply a matter of appetite. It reflects an investor’s attitude to risk, their capacity for loss and the length of time over which they can remain invested.
For younger investors, entrepreneurs still growing a business or professionals with strong ongoing earnings, time is a powerful asset. They can tolerate volatility because they do not need to draw from the portfolio.
Indeed, market weakness may even work in their favour if they are still adding capital, allowing them to buy assets at lower prices.
“In that phase,” Pemberton explains, “the objective is to use the risk budget efficiently to seek an appropriate long-term return consistent with the investor’s objectives, attitude to risk and capacity for loss. Volatility is not irrelevant, but it is often the price paid for compounding. If the time horizon is long enough, and the investor is not forced to sell, short-term market falls need not necessarily be permanently damaging, although future outcomes cannot be guaranteed.”
This is the essence of building wealth through investing: accepting uncertainty in pursuit of a higher long-term return, provided the investor has the time, temperament and financial resilience to endure the journey.
Beal approaches the issue from a different angle.
“Maintaining wealth is not simply the same process with a lower-risk portfolio,” he says. “It is a different problem. Very often, the capital has been created by circumstances that cannot easily be repeated. A business sale, an inheritance or a divorce settlement can all produce a significant capital sum, but they do not necessarily come with the ability – or the desire – to recreate that capital if things go wrong.”
That changes the psychology of investing. A client who sells a business for £5 million may not think of the portfolio as an abstract pool of capital. They may think of it as the result of decades of work. An inheritor may feel a responsibility to previous and future generations.
The starting value becomes an anchor, and losses below that figure can feel qualitatively different from ordinary market volatility.
“For many people,” Beal says, “the objective is no longer just to live off the capital. It is to become a steward of that capital. That means preserving purchasing power, maintaining flexibility and thinking carefully about legacy, whether that legacy is for family, philanthropy or future optionality.”
That stewardship perspective also leads Beal to a point that can sound technical but is central to real-world advice: the order in which returns are experienced can matter as much as the average return achieved over time.
“Portfolio theory is often presented as though investors are all solving the same problem,” he says. “But a client drawing capital, a family trustee managing assets for future beneficiaries and an entrepreneur still reinvesting income are not facing the same constraints.”
In its simplest form, traditional portfolio theory asks how much return can be expected for a given level of volatility. That remains useful, Pemberton adds, particularly for investors in the accumulation phase.
“If the objective is long-term growth, and the investor has no need to sell during difficult markets, then volatility may be acceptable if it is properly rewarded,” he says.
The issue becomes more complicated when capital has to fund a life, meet obligations or remain available for known future claims. At that point, risk cannot be measured only by market fluctuation. It must also account for liquidity, withdrawals, timing, inflation and the possibility of needing to realise assets when markets are unfavourable.
Beal gives a simple example. Two investors may begin with the same capital, take the same withdrawals and experience the same average return. Yet if one suffers weak markets early, while withdrawals are being taken, the outcome can be materially worse. Assets sold after falls leave a smaller base from which future returns can compound.
“That is why averages can be misleading,” he says. “For families and trustees, the relevant question is not simply what return might be achieved over time. It is whether the portfolio can remain resilient through the sequence of events the client may actually experience.”
This leads to a deeper point: risk itself changes meaning depending on the role capital is expected to play. For investors with earned income, long horizons and no immediate need to draw from their portfolios, risk is often experienced mainly as volatility.
Market falls are uncomfortable, but they need not be permanently harmful if the investor can remain invested and allow time to do its work.
For those who have already created or received substantial capital, risk is more tangible. It may mean impaired spending power, loss of flexibility, diminished legacy or the need to alter plans at precisely the wrong time. This is why Beal argues that maintaining wealth should not be reduced to taking no risk at all.
Cash may feel safe but inflation, spending and taxation can erode purchasing power over time. The appropriate balance between cash and investments will depend on individual circumstances.
The aim is instead to identify a sensible objective – perhaps preserving capital in real terms, or achieving inflation plus a modest margin – and then seek to achieve that objective with the minimum necessary risk.
Pemberton frames the contrast simply, saying: “When capital is still being built, the question is how much return can reasonably be earned for the risk the investor can afford to take. Once capital has been created, the question often changes: how little risk is required to meet the objective?”
Between these two broad situations sits a more nuanced category of investor, which Beal and Pemberton say they encounter frequently among successful professionals, entrepreneurs and families.
This is the individual who has achieved financial independence but does not yet rely on their portfolio to meet day-to-day living costs. Their wealth exists not as a necessity but as a source of flexibility, opportunity and long-term security.
At first glance, such investors may appear to have the luxury of taking a more growth-orientated approach. Without regular withdrawals, one of the most damaging forces in investment – the combination of market falls and forced selling – is largely removed. They regain the ability to wait. Yet their position is not the same as that of a younger accumulator.
Significant calls on capital can still arise, such as helping family members, buying property, funding a new venture, making gifts or supporting philanthropic commitments.
These may be discretionary, but they are often meaningful in size and not always perfectly flexible in timing.
As a result, the nature of risk evolves once again. It is no longer simply volatility, nor is it outright depletion. Instead, the relevant risk becomes the loss of flexibility, the possibility that capital is impaired at precisely the moment it is needed.
In this context, sequence risk does not disappear; it becomes episodic. The investor may have complete freedom to ignore market conditions most of the time, but if a large decision coincides with a period of market weakness, that freedom can be sharply reduced. Capital may need to be realised at an inopportune moment, not out of necessity but out of intention.
This introduces a behavioural dimension that is often overlooked. Because there is no immediate financial pressure, portfolios in this phase can quietly become more aggressive.
Investors may increase exposure to higher-risk or less liquid assets, comforted by the knowledge that their lifestyle does not depend on their portfolio.
Concentration can build, and liquidity can diminish, often without conscious intent. For long periods, this can appear to work well but it can also allow concentration and illiquidity risks to build quietly in the background.
“The danger,” Pemberton notes, “is that because the client does not need the portfolio for day-to-day income, the portfolio can gradually become more aggressive or less liquid than is appropriate for the life it is actually intended to support.”
The discipline required at this stage is therefore different. It is not driven by necessity, but by foresight. It requires maintaining sufficient flexibility within the portfolio to act when desired, without being forced into poor timing decisions.
The objective is no longer purely to maximise wealth, nor simply to preserve it. It is to protect the freedom that wealth provides. The distinction between building wealth and maintaining wealth, then, is not simply a question of portfolio labels. It is a question of purpose.
“The same investment can look very different depending on the role it plays in someone’s life,” Beal says. “Capital that is being accumulated can tolerate a different journey from capital that is supporting a family, providing independence or intended to pass to the next generation.”
Between accumulation and preservation lies a more nuanced stage, where the objective is not survival, but control: control over timing, decisions and opportunity.
For Beal and Pemberton, the conclusion is that successful investment advice must begin with context. Before deciding how much risk to take, investors need to understand what their capital is for, how replaceable it is, what claims may be made on it and what would constitute success. Only then can a portfolio be aligned with the life, family or trusteeship it is intended to serve.
Important information: This article is provided for general information only and should not be regarded as investment advice, a recommendation or an invitation to invest. The value of investments and any income arising from them may fall as well as rise and investors may receive back less than the amount originally invested. The suitability of any investment strategy depends on individual circumstances and objectives. Professional advice should be obtained before making investment decisions.
About Westminster Asset Management: Westminster Asset Management is a Jersey-based independent wealth manager providing financial advice, discretionary investment management and custody/platform services through an integrated wealth management service. The firm works with high-net-worth individuals, high-earning professionals, families, fiduciaries and retirees, helping clients align their investments with their personal objectives from sustainable retirement income and inflation protection to capital preservation, family support and legacy planning.
Westminster Asset Management is a trading name of Westminster Capital Limited. Westminster Capital Limited is regulated by the Jersey Financial Services Commission. Registered Address: 3rd Floor, Le Gallais Building, 54 Bath Street, St. Helier, Jersey, JE2 4SU.
