A Generational Mindset
Everyone wants generational wealth — Few want to be the generation that builds it — A generational mindset is the key to lasting wealth.
A GENERATIONAL MINDSET
The term “generational wealth” is tautological. The secret to building generational wealth is hidden within the name itself. You simply save for a generation, then your children have generational wealth.
Investors who reach the long-run and accumulate outstanding wealth do so by investing for generations. Like Ronald Read, a Vermont janitor and gas station attendant who built an $8 million fortune, or Warren Buffett’s riches, the secret is not in lottery-style winnings, but instead the incredible length of their compounding.
Investing for the long run means investing for most of one’s life. Investors that reach this pinnacle have a mindset primed for generational wealth.
The Reality
The sad reality is that few investors have a generational mindset. While everyone professes to be a long-term investor, our reward-focused, return-seeking mindset shortens our investment horizon.
Is an investor saving for their personal retirement really a long-term investor? The intention to spend immediately creates an end date for an investment portfolio. For all but the youngest investors, having a goal truncates the long-term. Time frames rapidly shrink as a goal to retire at 65 limits a 40-year-old’s “long term” to just 25 years.
Notably, Warren Buffett’s portfolio has no end date. Buffett was never saving for a new car or a down payment on a house. Instead of savings or retirement goals, generational savers, like Buffett, fall in love with compounding itself.
Generational Sacrifice
Due to the exponential nature of compounding, the largest dollar returns always occur in the final years of saving. This dynamic exacerbates the sacrifice of the saver as there is never a good time to sell investments and reap the rewards. The opportunity cost of selling continually grows as wealth builds.
Warren Buffett’s current net worth is ~$144 billion. At age 65, Buffett was worth $17 billion. By continuing to compound his capital, instead of spending it down in retirement, Buffett generated over $125 billion of value.
Of course with sums this staggering Buffett couldn’t have spent down his fortune, but the principle remains. The compounding available to everyone post-retirement has the potential to create the largest amount of wealth for one’s family.
Do You Really Want Generational Wealth?
Generational wealth, for those who don’t have it, presents a self-sacrificing dilemma. Generational wealth is created when one generation saves its capital and, instead of enjoying the fruits of their savings, passes this capital down to their children or grandchildren.
But why should you, the individual who has worked and saved their money, not reap the benefit? You have only one life after all, and you cannot take the money with you.
The first generation creating the wealth makes an enormous sacrifice. This explains why families with generational wealth are so rare. It is not investing prowess that stands in the way, but instead the extreme generosity associated with bequeathing hard-earned capital without extracting a reward.
Everyone wants generational wealth but few want to be the generation that creates it.
The Recipe
The first generation must create truly excess capital. Not money to invest, but capital that will never, ever be needed. This will be the seed money for the generational wealth.
This capital must then be invested uninterrupted. The first generation investor must have the fortitude to stick with their investment plan not by imagining their future rewards, but by dreaming of their children’s future rewards. This is a munificent mindset, focused on the well-being of others over oneself.
Next, future generations must commit to adding to the capital. Few families are capable of preserving wealth over multiple generations as the long-term investment mindset must be passed down in addition to the capital itself.
Be A Contrarian
Building generational wealth, as we’ve shown, is simple: just start saving. Creating capital to invest uninterrupted is the first step. The second step is to adopt a generational mindset, generously focusing on future generations and subverting any thoughts of material benefit for oneself.
Everyone has the capability to begin building wealth for the next generation of their family. While the term “generational wealth” is intimidating and exclusive, the opportunity is there for anyone to join the club.
Unfortunately, for you, the first generation, there is no reward for your effort.
