After many years of both quantitative and qualitative research with wealthy families, we have identified what the factors are that create “perpetual wealth”.

Perpetual wealth is multi-generational wealth that will continue to renew itself and protect and benefit these families. It is not the type of wealth that can be pilfered by the members of a generation that choose to live richly but not wisely.  This formula is somewhat consistent regardless of whether the family has $5 million or $10 billion.

The portfolios of families with multi-generational wealth generally have about 35-45% of their portfolio in stocks and bonds, another 20% in real estate, and 25-35% in business ownership.  The rest of the portfolio is made up of different types of investments and products such as insurance, pensions, IRA’s, etc. As you can see, these portfolios are very diversified. This diversification, however, is among multiple investment types not just multiple types of securities.

Investment in income producing real estate is a staple for many wealthy families and a great way to pass on intergenerational wealth.  By interviewing numerous wealthy households we found that most of them held several income producing properties.  Many of these families felt they could live off of the income of the properties and not touch the principal of their other assets as they aged. The second reason was because they often found the properties were a concrete way to pass on a legacy to children or grandchildren.

The second secret was a little more difficult to describe. Generally we found that families with multi-generational wealth included family members in running and growing a family business as well as spinning off other businesses often related to the primary business. This may be as simple as running the family concrete business or landscaping business. In contrast, it may mean learning to manage a hedge fund. What did not work was the belief that passing along a family “practice” would result in multi-generational wealth.

In order for families to continually renew their own wealth, they must be encouraged to have a “think tank” atmosphere and to push themselves into new and sometimes risky ideas.  While it may be easier to take on risk when one already has substantial assets, it must be remembered that those who have created perpetual wealth have continued to invest in substantive enterprises and not just rely on market returns.

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