Following the popularity of last week’s article, we’re launching a four-part series and taking a deeper dive into Charlie Collier’s philosophy of true family wealth. Charlie spent 25 years advising Harvard’s largest philanthropic families. Over the next few weeks, we’ll explore each of the four wealth components in more depth. We’re starting today with the foundation of wealth, your Financial Capital. How should it fit into your family?
Once you’ve earned enough capital to reach your number, whether that’s $5 million or $20 million, what’s the next step? Your discretionary investment advisor should be the one responsible for the maintenance of your assets. Some examples of maintenance include:
- Tax efficient investing: ETFs help you control your own tax basis. Hedge funds, not so much. In fact, after-tax hedge fund performance is rarely worth it for individuals.
- Removing unnecessary costs: If you’re still paying 12b-1 fees, your portfolio is stuck in the 90’s. We’re vigilant on commissions, rakes and unnecessary expense ratios. Why? Because we follow the fiduciary legal standard – our interest is closely aligned with our client’s interests.
- Risk constancy: Risky assets won’t notify you before doubling in value or dropping by half. Risk constancy includes the discipline of selling through surges and buying through dips, across all markets.
- Asset location: Increasing after-tax return by sorting specific higher yielding, cash flow producing, assets into tax deferred and tax free accounts.
- Experts: Your investments should be coordinated with your taxes, estate planning and insurance needs. Ask us if you’d like a referral to one of our preferred experts to join your team of advisors…
- And more…
Tell your story
There’s an old adage about family wealth: “Shirt sleeves to shirt sleeves in three generations.” How can you equip your children and grandchildren to protect, not squander, the results of your hard work?
Charlie advocates telling your stories. Tell family members about the drama, uncertainties, sweat equity, risks, rewards and struggles you went through to accumulate wealth. Stories provide context and make your family members feel valued and included in something special. Later generations tend to spend more thoughtfully when they feel connected to the source of their wealth. Stories help reinforce that connection and build appreciation. We recommend making it a regular habit.
Maintain your lifestyle
No fortune is too big to fail. Reckless spending and careless investing can quickly drain your financial capital. (Ask anyone on the ever-growing list of Hollywood stars and athletes who exhaust their massive fortunes.) It begins and ends with expenses.
As a rule of thumb you’ll need a portfolio approximately 25 times larger than your annual expenses to support your lifestyle in perpetuity. Why 25 times? Because that’s the inverse of 4%, and a large diversified investment portfolio can reasonably support a 4% withdraw per year over the long haul. Maintaining your lifestyle and freedom of choice is directly linked to keeping your draw-down in check.
Many clients have told us that hiring a discretionary investment advisor, like Osbon Capital Management, has helped them stop and think carefully before withdrawing from their portfolio – for a new investment idea, brand new vacation home, etc… Separation can be a powerful tool for preserving and growing your wealth.
Build core competencies
If you get blank stares from family members when you mention asset allocations or diversification, think about how you can help them learn what they need to know. Charlie says to define what you think are the core financial competencies for anyone from a barista, to a college student or a nurse.
For starters, we recommend adding your family members to the Osbon Capital list to receive our weekly articles. If you’d like a specific age-targeted reading list, we can recommend a few titles. As a particular topic comes up in family discussions, let us know and we can write about it in our next article. We’re here to help.
Max Osbon – firstname.lastname@example.org
- This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
- “Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
- Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
- Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
- This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
- While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
- Adviser does not endorse the statements, services or performance of any third-party vendor.
- Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.