EP 12 | WHY IS GENERATIONAL WEALTH SO IMPORTANT?

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Hosted by
ANDREW LANOIE

 

Have you considered how your investing could impact your legacy and future generations? It is one distinction in how the ultra-wealthy invest their portfolio. And if you haven’t checked out the previous podcast called building your legacy, we go deeper on some of this, but more on this later. 

First, there was a New York times headline that red clouds are forming over the bond market. Comments by federal reserve chair Janet Yellen indicated that the fed will be scaling down its large four and a half billion-dollar balance sheet, meaning that they view the state of the us economy as pretty much recovered from the market meltdown of 2008. Now keep in mind, this is all prior to Corona virus. 

Europe central bank had Mario Draghi, a well-known Italian economist has indicated he would be winding down the bank’s balance sheet, along with the bank of England’s governor Mark Carney, who has made similar comments and put together. This means the days when the banks lowered short term interest rates to nearly zero to stimulate the economy are a thing of the past. In fact, the fed has been raising short term rates since December of 2016, and they have made statements that they will continue to do so. 

Janet Yellen, chairwoman of the federal reserve bank confirmed to the white house committee that interest rates would continue to rise. As interest rates rise, easy money becomes more scarce and returns on short term bonds increase and the appetites for equities is reduced. This has led some financial analysis to predict a fall in stock prices. This should come as no surprise given the incredible run-up and equities over the past several years. Since the beginning of 2017, the S&P 500 has realized a return of over 9%. There are warning signs coming from the bond market too. While the fed is raising rates in the short-term bond market, long-term rates, those set by the bond market trading are declining. This disconnect has in the past, proceeded a crash in the stock market, followed by a recession. 

Accordingly, there is increased concern about where the fixed income market is headed, because it is very unusual, and some say scary for short term rates to move towards parody with long-term interest rates. When that hasn’t happened previously. And when short term rates become higher than long-term rates, you’ve got trouble on the horizon. 

This is called yield curve inversion. And it happened right before the economy tank back in 2007, just like when we saw the yield curve inversion happening earlier this year, it’s time to run for the Hills and liquidate those traditional assets that get killed in a downturn. And don’t wait too long. This stuff sneaks up on you 

and before you know, it it’s too late. 

A safer place to invest away from the future bond market mess are intangible assets that can generate long-term income. These asset classes generally do well when wall street equity and bond markets do poorly. There are great hedge against the stark ups and downs of wall street. Historically alternative asset classes included real estate, commodities, rare coins, stamps, and artwork. More recently, the term includes private equity, venture capital and hedge fund investing. Besides acting as a great counterbalance to stocks and bonds, many of these tangible alternative assets are critical to diversify in because they are generally less liquid than regular assets, sometimes undervalued and providing the investor with wonderful long-term return on investment. 

Only a few of the investments in the alternative asset class can generate income and appreciate in value. I get asked all of the time, how do I create generational wealth and where do I start? So I wrote a great guide to creating multiple streams of income. You can download it for free at stoptradinghours.com. Remember the real estate asset class is a tangible investment which provides income over the long-term, regardless of what happens on wall street. 

Affluent investors have effectively used the real estate asset to hedge against inflation and volatility while passively earning income for generations. You have been lied to from the education system to the financial gurus, they have lied to you about building wealth and financial freedom. In the new economy what worked for your grandparents or your parents will not work today. So start building your legacy. Your future self will thank you. 

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13 comments
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Episode 12