Generational wealth is defined as assets or property that are passed down from one generation to the next. In practice, generational wealth comes in a wide range of different forms. It may be the money that pays for a child’s college education, or a trust fund that provides protection during a rainy day. Above all else, generational wealth is a lasting legacy of support. It is something that everyone wants to be fortunate enough to be able to leave to their family and loved ones.
Why is Generational Wealth So Important?
Generational wealth is a meaningful legacy. As noted by MarketWatch, people who have access to generational wealth possess a material financial advantage. If you are able to leave your children, grandchildren, or other loved ones access to generational wealth, you are fundamentally giving them access to opportunity. What they do with that opportunity is, of course, not entirely in your control.
Still, you can help to put your loved ones in the best possible position to grow, thrive, and fulfill their highest potential. Whether that means going to the school of their dreams, starting a business without taking out a massive loan or selling off any equity, or pursuing a meaningful career that may not pay as much, generational wealth provides a path to freedom.
The Challenge: Even Great Fortunes Deplete Over Time
Creating generational wealth is certainly not an easy thing to do. Think about it this way: If you were suddenly gifted a significant sum of money, how much would be left in five years? What about 10 years, 20 years, or 50 years? The answer, of course, is that it depends entirely on what you do with the assets. If you spend money—even if you are very cautious and responsible—your financial resources are slowly going to be depleted over time. To put the challenge into perspective, consider this: A recent study estimates that 70 percent of families lose their capital in just one generation and 90 percent of families lose it in two generations.
Building Your Own Business is a Great Way to Create Generational Wealth
It is difficult to build something that lasts for multiple generations. This is the primary reason why the number one way to build enduring generational wealth is by building a successful business. A great business is an income-producing asset. It can be thought of as a renewable resource that keeps bringing gains. What began as a small business can grow into a company that supports a family for many years to come.
Investing in Secure, Well-Diversified Assets Provides Protection
Another tried and true path to building generational wealth is through a portfolio of secure, well-diversified assets. The world’s greatest investors recommend that people take the time to ensure their holdings are properly suited for their objectives, time horizons, and risk tolerance. Stocks, bonds, and real estate have long proven to be effective investments for building wealth.
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