For Our Kids and for Theirs: taking the long view of investing

The biggest challenge I have as an advisor is to think long term, and to get my clients to do the same. We are conditioned to be looking for fast answers to our questions and even faster returns on our investments.  We have trouble with the slow and steady approach.

My last post on Tuesday defined the shorter view; in the interest of pushing the envelope a little bit in the other direction, let me talk about the VERY long term. I’ll call it Generational Wealth.

Generational wealth, as I’ve come to understand it, suggests that we ought to be thinking about our children’s children. That at least some of my financial wealth, and I pray piles of the non-financial kind, will be passed on not only to my kids, but to their kids as well.

So, for me, at 42, if the Lord gives me an average number of years, then I’ll live another four decades.  My children, Lord willing, will live another three decades beyond that.  My children’s children will add three more, and so on.  Again, I don’t know if I’ll even make it to the end of today. I’m promised nothing in that regard and I’m okay with whatever I get, but the averages are still a possibility, and wisdom says that I should think through what’s possible.

So it is possible, if the Lord gives me strength, that I will get very old.  It is likely then, if I’m wise, that my money will get even older. Do my decisions about money and investing reflect this likely reality? Does what I’m teaching my kids make them more or less able to grow the wealth I’ve left them?  Or am I silent on this issue? Do I just hope that they won’t make the same mistakes I’ve made? Do I hope that they find the right path where I’ve found it?  And am I doing something proactive to make sure they do?

There are hundreds of directions I could move in from that intro. Lets just focus in on investment philosophy today (more on other topics later). Capital markets have existed for hundreds of years in hundreds of countries.  For almost as long as there has been money there has been the ability to invest money in the efforts of others. Really, the only thing that is unique about the US and the last 100 years is the amount of confirmed data we have on the subject.  The fact is that people have been making investments like we do today but with less technology and sophistication, in everything from common stock in the East India Trading Company to Turkish black tulips (jump to the 5:20 mark) in Holland 400 years ago.

The past 100 years has given us an amazing amount of confirmation about what investors have known for a millennia:

  • Capital dollars invested in the for-profit efforts of others yields a return greater than what the banks will give return to hold on to it (US stocks have given greater than a 6% premium over inflation on average).
  • Capital investments are not guaranteed and are not predicable in the short term. The fact is that they appear random.

Markets are very old.  Your money has the possibility of being old as well.  Do the decisions you’re making and the investment philosophies you’ve employed reflect these potential realities?  Or, are you simply hoping for a fast buck?

Indeed, history shows that lasting wealth is gained little by little over time. 100 years from now how much could your great-grandchildren be worth (to society, to your church, financially) if you started thinking about them in your financial plan today?

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