When it comes to investing, markets will always rise and fall — but your goals usually don’t change. Whether you’re building towards retirement, putting something aside for your children, or making sure you’ve got a buffer for the unexpected, managing risk is about giving yourself the best chance of success without being knocked off track by avoidable shocks.

The 2025/26 tax year hasn’t changed the main allowances for ISAs and pensions, but how you use them can make a big difference to protecting your wealth. Below, I’ll share practical steps for keeping your portfolio balanced, tax-efficient, and aligned with your goals.

Start with a clear plan

• Define your goals and timeframe: What’s this money for? A house deposit in three years? Retirement in 20? The shorter the timeframe, the more cautious your portfolio needs to be.

• Set your risk level in advance: Think about both your capacity (what you could afford to lose without derailing your plans) and your tolerance (how you’d feel if markets suddenly dropped).

• Ring-fence cash needs: Always keep 3–6 months of essential spending in easy-access savings. This way, you won’t need to dip into investments during a downturn.

Simple, broad index funds or ETFs covering global equities and high-quality bonds are a solid starting point. Avoid putting too much into one share, sector, or theme unless you’re comfortable with the extra risk.

Diversify sensibly

Spreading your investments reduces the impact of any single holding. Some key ways to diversify:

• Assets: Mix growth assets (like equities) with defensive ones (bonds, cash).
• Regions: Don’t stay too UK-heavy — global funds help spread risk across economies and currencies.
• Issuers: In bonds, balance UK gilts with corporate bonds.
• Currencies: Equities are usually unhedged, adding some volatility, while many bond investors prefer sterling-hedged funds to reduce currency risk.

A diversified “core” portfolio behaves more predictably, while smaller “satellite” positions can add interest without increasing overall risk too much.

Make the most of tax wrappers

Tax-efficient accounts aren’t just about saving money — they make it easier to manage risk because you can rebalance and compound without tax drag.

ISAs

• Allowance: £20,000 for 2025/26 (unchanged).
• Types: Cash, Stocks & Shares, Lifetime (£4,000 sub-limit), Junior ISAs (£9,000).
• Benefit: Interest, dividends, and gains are all tax free. Rebalancing inside an ISA won’t trigger CGT.

Pensions

• Annual allowance: £60,000 (subject to tapering if your income is very high).
• Carry-forward: Use up to three years of unused allowances.
• Tax-free lump sum: Capped at £268,275 for most people.
• Tax treatment: Contributions usually qualify for tax relief and grow free of UK income and CGT.

Other allowances to remember

• Personal Savings Allowance: £1,000 (basic rate), £500 (higher rate).
• Dividend allowance: £500.
• Capital gains allowance: £3,000.

Using wrappers first helps you control costs, rebalance more effectively, and shelter more from tax.

Bonds, cash and inflation

• Interest rates: The Bank of England cut the rate to 4% in August 2025. Bond values can move a lot when rates change, especially long-dated bonds, so check your portfolio’s duration.

• Inflation: CPI was 3.6% in the year to June 2025 (CPIH at 4.1%). Inflation eats into both cash and bond returns, so keep your mix under review.

• Cash: Keep enough for short-term needs, spread across institutions for FSCS cover (£85,000 per person, per bank). Too much cash over the long term risks losing out to inflation.

Keep costs under control

Fees compound just like returns, so keep them as low as possible:

• Use straightforward, broad funds where you can.
• Avoid complex products unless you understand the risks and keep them small in your portfolio.
• Rebalance once a year (or when holdings drift significantly) to keep risk levels in line with your plan.

Protect what you have

• FSCS protection: £85,000 per bank for deposits; up to £1m for six months for certain life events. For investments, cover is £85,000 if a provider fails, but not against market falls.

• Operational checks: Always use FCA-authorised providers and enable security protections like two-factor authentication.

• Currency: A mix of unhedged global equities and mostly sterling-hedged bonds works for many UK investors.

Behaviour and discipline matter

Markets move quickly, and it’s easy to be swayed by headlines. A few golden rules:

• Automate contributions (monthly investing smooths out entry points).
• Write down your rules for what you’ll do if markets fall by 10%, 20% or 30%.
• Keep short-term spending separate from long-term investing.
• In retirement, hold a 12–24 month cash buffer to cover withdrawals.

A repeatable checklist

• Confirm goals and timelines.
• Keep 3–6 months of spending in cash.
• Map your portfolio to your risk level.
• Max out ISAs and pensions first.
• Keep costs low with simple funds.
• Rebalance annually.
• Monitor allowances and tax dates (31 Jan, 31 July, 6 April).
• Spread deposits for FSCS protection.

Wrapping up

Managing risk in your portfolio isn’t about avoiding losses altogether — it’s about being prepared, spreading investments sensibly, and using the tax system to your advantage. With a clear plan, discipline, and regular reviews, you can protect your wealth while giving it the best chance to grow.

If you’d like help reviewing your portfolio or checking your allowances, get in touch – I’d be happy to walk you through the numbers.