The Generational Investment Plan

Coaching - Succession- Financial Planning

The Generational Investment Plan

I admit it, I do it…

I listen to the radio in the morning to hear the stock futures. Is it going to be a good day or a bad day in the markets? The results can set the tone for at least the start of my work day.

This is, of course, crazy.

My family’s financial future does not depend on what the stock market does today. Our financial future is much more dependant on what I do today and following the stock market hourly is not on the agenda.

I do have a small investment account for speculation but that, frankly, is more a hobby – it’s my fun money not my life money or my legacy.

Life money is the wealth we build over our careers or receive by inheritance. For those of us who choose to be stewards of that capital for future generations, the time frame for investments becomes extended. Some of this pool of capital is there for rainy days or special events, some of it will fund the years, later in life, when we no longer have the energy or health or the interest in building the business and earning income. Some of this wealth will be part of our legacy; funds that support future generations as they pursue their own happiness. Hearing the stock futures at first light is not a material influence when planning a life money portfolio.

When you start thinking in these terms – in years and generations, your view of investing changes and opportunities present themselves that might not be apparent if you are looking at immediate returns or worried about how the market will react to the pronouncements of a government that will be consigned to history before long term investments mature.

Generational investing is focused on cash flow and income tax. If a long term bond sinks in value as interest rates rise – and most expect interest rates to increase – then long term bonds may not seem a prudent investment now, unless of course you plan to hold the bond to maturity (perhaps 30 years). The decision to hold a bond to maturity is based on accepting an established rate of return; the bond interest rate, face value and term to maturity are all known and there is comfort that this rate of return works within a portfolio whose goal is sustainable cash flow with a growth component.

Risk is minimized in generational planning by virtue of its long term nature.

Families with a generational view of investing have a goal of preserving and growing the family’s financial capital. They consider asset allocation and patience to be the most important tools in their portfolio management. Radios are just for music and entertaining stories.

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