Hey everyone, it’s Andrew Lanoie, and I want to thank you very much for joining me on the very first episode of The Impatient Investor. Today we’re going to be talking about building your legacy and the two different types of legacies that you want to leave. Here’s a quote I found. Any fool can make a fortune, but it takes a man of brains to hold onto it, and that was Cornelius Vanderbilt.
So here’s a question for you. Are you thinking about what kind of legacy you want to leave for future generations? The sooner you start building your legacy, the better. How long do you want your legacy to last one generation or two generations. How about leaving a legacy in perpetuity? As we get older, our legacy becomes significantly more important to many of us. If your goal is to leave a legacy, which will last for centuries, I would consider building two types. The first is financial legacy, and the second is knowledge legacy. One without the other will severely handicap the chances of your legacy lasting into the next generation. Building a financial legacy and knowledge legacy should go hand in hand. Leaving financial wealth without teaching your descendants how to make and preserve money as you did will ensure the evaporation of your fortune. I’m wondering, and I guess you’re wondering how quickly a fortune can disappear, in 60% of cases where a family’s fortune is blown, it’s usually exhausted in one generation by the children of the person who created the wealth. And that was according to Roy Williams, who’s the president of wealth consultancy at the Williams group. In 90% of cases where a fortune is blown, it’s gone by the second generation. Typically by the time the grandchildren die. Think about that. 90% of blown fortunes are gone by the second generation. Don’t let this be you. William’s also cited two factors contributing to the loss of wealth in these cases. The first is uninhibited spending and the second is lack of ambition.
The most famous and extreme example of squandered wealth in the U S is the Vanderbilt’s, Cornelius Commodore Vanderbilt, the patriarch build his fortune from railroads and shipping during the mid-18 hundreds, at the time of his death in today’s dollars, he would be the second richest American ever worth over 200 billion. That’s well above Jeff Bezos and Bill Gates, yet his fortune and specially his grandchildren live lavishly and did little to protect his fortune. By the 1970s the family held a reunion with 120 members attending and there was not one millionaire. By the 1970s the family held a reunion with 120 members attending and there was not 1 millionaire among them. Amazingly Commodore Vanderbilt foresaw this happening as he often lamented publicly, he didn’t think his children had what it took to build upon the family wealth. And boy was he right. If only he and instilled in his kids the brains to grow or at least preserve his wealth. To avoid the Vanderbilt mistakes, as you’re building your wealth, teach your children and grandchildren how to replicate your efforts so they can build their own wealth. But first, you have to build your wealth before you can teach your children how to do it, and it’s going to take more than hard work.
A doctor can earn $700,000 a year, but if he’s spending all of it and not leaving anything to invest in wealth producing assets, he will not only fail at creating generational wealth, but creating wealth in his own lifetime. Across the stages of wealth building, there is perhaps no proper roads than when your income starts to exceed your expenses. Across the various stages of wealth building, there is perhaps no more important crossroads than when your income starts to exceed your expenses, leaving you with a surplus. What you do with the surplus will determine your chances of building generational wealth. What type of investment will give you the best chance of building true wealth, the stock market, way too volatile, 401ks or mutual funds? They’re all correlated with the stock market.
What we can learn from old money families like the Rockefellers and the Hilton’s who chose wealth. What we can learn from this old money families like the Rockefellers and the Hiltons whose wealth has endured is that to build generational wealth, the key is to invest in income producing assets to grow that wealth exponentially.
The Rockefeller’s and the Hilton’s invested their wealth and income producing real estate and businesses and reinvested profits back into similar assets, thereby building exponential wealth that continue to pay out long after their deaths. One of the surest ways to ensure the longevity of your wealth is to invest in passive income producing real estate. With the twin benefits of cash flow and appreciation, real estate is one of the few assets besides a successful business capable of creating generational wealth that can grow over time. Although real estate values can fluctuate from time to time over the long-term real estate appreciation has proven stable in many cases substantial.
Also over time cashflow will increase as rents rise. I found an interesting study that shows census data from 1960 to 2014, the study found that inflation adjusted rents have risen by 64% but real household incomes only increased by 18%. So it’s more proof showing that salaries are not keeping up with expenses. And it makes me think of a story that I’ve told before. My grandfather, my dad’s father grew up lower middle class, raised three kids, owned a house and a car, put the kids through school, and it was all on one salary. Nowadays, it’s not uncommon to find both parents working two jobs each to make ends meet. So by investing in solid real estate funds or partnering with private real estate groups, you can generate wealth through passive income for generations to come.
Despite leaving your heirs in good hands with an appreciating income producing asset like real estate, the number of your heirs could reach a point where their rate of growth exceeds the rate of growth of your wealth as the number of errors grows with each passing generation. This is where the second element of leaving a legacy comes in. While building your financial legacy, it is critical to pass on your wealth building strategies, processes, and actions onto your heirs along with dedication to work and ambition. Building wealth upon wealth will improve its longevity. Teaching your heirs to build on your wealth will ensure its longevity and will ensure that future generations be provided for. Otherwise, you could potentially face a situation where a finite number of assets is spread thinly over a large number of descendants. With a view of taking care of future generations, don’t forget to pass on your knowledge. Otherwise the only legacy you will leave is one of privilege, sloths and unbridled spending.
Besides instilling in your heirs the basic traits of good character, like hard work, honesty, diligence, and charity. It is also vital that you pass on practical investment skills and habits. In other words, go out and make your fortune while you’re making it and involve your children. Teach them what you’ve learned, so they can build on what you leave behind and avoid fate of the Vanderbilt’s of the world.