Emma’s Note: Our offices are now closed for the holidays. So over the next couple of weeks, we’ll be bringing you a series of classic essays from Bill.
As families gather over the holidays, we look at how they can work together to create wealth that will last generations…
Today, what not to do… Bill’s list of eight “not cool” things starts with something that is perhaps the most obvious… but most difficult to resist…
Families with old money all have their own norms, their own values, and their own no-nos. These largely determine their success or failure over time.
Don’t fall into the trap of focusing only on the financial side of your family legacy. The family side is way more important.
What follows is a list of eight things that “aren’t cool” for families who want to create “old money.” You will have your own list.
What’s important is that you spend time instilling the values on your list in your kids and grandkids. Your family’s success rests on their shoulders.
1. Spending – Not Cool
Give a million dollars to an average person, and he immediately thinks of what it will buy. But give a million dollars to an old-money family, and it goes into a business… an investment… or a new entrepreneurial venture.
What matters for old money is producing, not consuming. We don’t want to consume goods and services. We don’t want to consume information and ideas. We don’t want to consume Wall Street’s fee-stuffed “HNWI” (high net worth individual) products, either.
Let others drive their fancy cars, carry their expensive handbags, and have addresses in the chic ZIP codes. Old money doesn’t show off by buying things. It prefers to keep a low profile… and a low cost of living.
It knows that investment costs have to be kept down, too. And the best way to do that is to avoid hedge funds and structured products. Stick with simple, low-cost, long-term investments.
2. Spending the Family Fortune – Even Less Cool
“Never touch the capital” is a long-standing rule and a hallowed tradition among old-money families. You may spend the interest on the family fortune – even the capital gains it produces. But woe betide the heir who draws down the principal.
The principal must be kept intact. Any distributions should be of interest, after taxes and inflation adjustments. At today’s low interest rates, it is hard to earn much income – safely – from your investments.
Families are tempted to “dip into capital” to make ends meet. There’s a taboo against it. And for good reason. Once you begin living on a previous generation’s savings, you will find it hard to stop… until the family fortune is all gone.
“Eat only what you kill” is a better way of expressing the taboo against spending family wealth.
It allows you to spend only what you make yourself. The earnings from capital go back into the family fortune, replacing losses from inflation and taxes.
3. Doing What Others Do – Not Cool
Most people want to fit in. They seek social approval by doing what other people do. But if you do what other people do, you will get the results that they get. You will become average – just like they are.
Having wealth is rare. Having it for more than one generation is rarer still. You don’t do that by doing what other people do. You have to think more clearly… and avoid many of the ideas, values, and habits that most people have.
You must be willing to be different. Sorry. But that’s the price of having and holding on to old money.
4. Making a Public Spectacle of Yourself – Not Cool
Paris Hilton may have enjoyed getting her face in People magazine. But the Hilton family didn’t like it at all. Old money likes to keep things private. It favors private businesses, private information, private investments, and private lives.
Private businesses are more profitable, to their owners, than publicly quoted stocks. They pay fewer legal fees, fewer accounting fees, and spend much less money trying to please investors and the media.
Today, publicly traded businesses in the U.S. distribute a measly average of 60% of their profits to shareholders. A privately owned, privately controlled business, on the other hand, may turn over 100% of its earnings to shareholders. It may give the owners corner offices, too. In a public company, much of the earnings go to paying CEOs and corporate managers. In a privately controlled corporation, the owners decide who gets the money.
Old-money families also learn to discount public information – the stuff you get from newspapers and TV – and to put a premium on their private information sources. They trust their own eyes and ears… and their personal contacts.
This attitude informs old-money families’ investments. Rather than invest on the basis of what everybody knows, they try to pin their investments on what they know that other people don’t. Deep knowledge of particular industries is developed. Special “family secrets” are encouraged.
Jobs, financing, insurance, and a helping hand are available when they are needed. Old money looks to private sources – primary among them the family – for what it needs.
Stay tuned tomorrow for more…
Regards,
 |
Bill
Managing Editor’s Note: Tomorrow, Bill has more “not cool” things to avoid if you want to create lasting family wealth. If you liked today’s essay, I encourage you to consider Bill’s latest book, Win-Win or Lose… Bill says it’s the last book he ever intends to write.
He also believes it’s his most important book. It’s a history book, a psychology book, an investment manual, a business book, a self-help book, and a novel of the future – all in one. His book will help you make sense of what’s really happening in 2020 (and beyond).
Go here to find out how you can get a limited-edition hardback copy.
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