14562 days ago
“Like arrows in the hands of a warrior, so are the children of one’s youth.” – Psalm 127:4-5″
This topic is absolutely foreign to the middle class, and even many high income earners. I myself have never experienced it; my education comes directly from speaking with wealthy individuals and observing some of the richest families in history.
The Idea of Family Wealth
I am not talking about starting up a college fund for little Jonny, or even leaving your heirs with an inheritance. What I am referring to is a real multi-generational team effort to preserving wealth. Let me back up for just a minute. In your own family, you might have some jewelry, a piano or a rifle that goes back a few generations. Maybe it’s from a great grandmother or distant relative; something the family cherishes.
These items are obviously not for consumption. No one in the family would easily sell them. In fact, just the opposite; the items are expected to be passed down to future generations. Family wealth is described best by Bill Bonner in his book, Family Fortunes. “The idea that the family money doesn’t belong to any one person, not even the individual who earned it.”
Looking at some of the wealthiest families on earth — like the Waltons, Rothschilds & Vanderbilts — this is precisely how they treat their wealth. Not as heirs, but as custodians. A family business has an obvious competitive advantage, but a family business that is built for multiple lifetimes is something to be admired.
Think about it: bear markets are no problem because time is not a problem. The family business can wait for the right times to buy and it can reinvest in itself, compounding the returns for well over one person’s life span. There is no retirement age for the family business. It can wait 10 years to invest in the stock market or buy real estate.
For a Family Business, Time is an Asset
Conventional wisdom today has everyone on their own financial treadmill, with the hope of retiring one day. The family business is more of relay race, with family members building and preserving wealth not only for themselves, but for blood relatives they will never even meet.
This is a tough idea to swallow, but think about it. If you make it a point today to help your children, grandchildren and great-great-great-great-grandchildren, think of the compounding effect. Especially in human capital, when you teach your children to do the same.
Not a hand out, but a business — a pooled source of investments that belong to no one individual, but that is managed by the family. Of course you will need to establish some rules; a criteria for having a vested interest. Obviously some family members may be more eager to build the business than others, so we don’t want to just have a free dividend check to all.
Let’s Face It; Free Money usually Hurts People
Here are some of the top guidelines I have noted that successful families implement with their businesses:
- Unanimous vote required for actions taken by the business
- Setting up a family council
- Meeting annually to discuss the business
- Creating charitable roles for members who don’t want to participate
- Setting up a family dividend
You can see why this type of wealth preservation entity could only be a family affair. Because if you haven’t already considered it, it will ultimately take a 1st generation to start it — to sacrifice what is rightfully theirs — and to allow it to become something whose sole purpose is to benefit the family for generations.
Like a cherished piece of furniture handed down, this business will be around for a long time. But first, someone is going to have to build it. Our best research on financial trends, wealth building and legacy investments can be viewed in our Smart Money Members area. If you aren’t a member, you are missing out.
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