Generational wealth is the accumulation of monetary resources over time, passed down from one generation to the next, providing possibly significant financial security. It can also be an essential element of affluence and stability for both families and individuals.
There are many reasons why generational wealth is important. However, the greatest may lie in its potential to support your descendants, providing them with a greater number of opportunities than their predecessors may have had.
Let’s take a look at how this differs from other types of affluence. As a CERTIFIED FINANCIAL PLANNER™ in Utah, I’ve got tips on how to start building your own long-term legacy today.
Please explore the following with us:
- Plan your personal and business finances
- How to keep wealth safer during inflation and volatility
- Charitable giving adds a great beyond-money legacy
- Scott Marsh Financial has the experience to help
Plan Your Personal and Business Finances
Creating wealth that stands the test of time requires a long-term plan. A great starting point is to focus on both your personal and business finances, assessing each area to determine your best action plan for success. Another vital step for individuals, families, and business owners is diversifying your portfolio.
This refers to varying your investments across multiple types of assets in high-reward and low-risk areas. The goal, overall, is to accumulate more wealth over time by periodically updating your portfolio’s asset allocation. That helps keep it market-weather-ready.
In an era of both raging inflation and bear markets, when you can’t be too cautious, it’s an especially good idea. Enjoying a luxurious lifestyle now may seem to suggest that you’re headed for a similar standard of living in retirement.
However, unfortunately, for two reasons, that may be far from guaranteed:
- Inflation is shrinking the value of the dollar. People think that inflation means higher prices, and it does, in a sense. Nevertheless, technically, those price hikes happen because a country’s currency is worth less and less. As a result, it takes more and more dollars to buy the same amount of goods or services.
- Stock market volatility is diminishing some assets’ value. Inflation almost always leads to higher interest rates, instituted by the U.S. Federal Reserve, as a sort of emergency brake for the economy. These rate hikes mean that floating-rate assets suddenly become hot properties (because they tend to generate higher returns as a result).
At the same time, as a result of supply-and-demand, fixed-rate assets’ appeal cools, lowering those investments’ value. This is why diversification is so important: When a normally-steady-returns-generating asset is suddenly worth less, it doesn’t sink your overall portfolio’s value.
How To Keep Wealth Safer During Inflation and Volatility
Again, affluent families looking to protect generational wealth from the impacts of inflation and market volatility should create a detailed wealth management plan. This can help ensure long-term financial stability by increasing your cash reserves, diversifying your investments, and mitigating potential losses through careful risk management strategies.
By utilizing these techniques, you can create a portfolio balance that is structured according to both the specific needs of your family and your financial goals for the future. At the risk of repeating too much, keeping a balanced, well-diversified portfolio can prove invaluable, as well.
For example, let’s say that supply chain shortages hinder the production lines of an electronics manufacturer that you own stock in: Unable to get the chips they need; they begin delaying orders and missing deadlines. The situation may only be temporary, but until these issues are resolved, their stock value begins a steady decline.
If you or your family hold a long position in this stock, your entire portfolio could lose significant value. However, conversely, if these shares are only a few of the multiple asset types you hold, overall, you stand to lose far less equity. In fact, if other asset types are making gains at the same time, those returns may balance out your losses.
Charitable Giving Adds a Great Beyond-Money Legacy
Charitable giving may be one of the most meaningful contributions that you can make during your lifetime. Not only does it help causes in need of financial support, but the act of donating is often viewed as a lasting legacy leaving a positive impression on both your future and current generations.
Unlike material possessions or money, philanthropy has the potential to create life-changing effects that are not diminished by time or inflationary trends. There’s a lot to be said for generosity in support of organizations that may otherwise struggle to stay afloat. In this sense, charitable giving makes it easier to leave behind a great legacy, regardless of your exact monetary wealth or assets.
Philanthropy also allows donors a unique opportunity to make a lasting impact on their communities (and beyond). One way to ensure that these impacts last is through strategies that allow your giving to continue long after you. Donor-advised funds (DAF) and trusts, for instance, provide great platforms for making grants to charities that can continue benefiting your favorite causes—sometimes for decades or longer.
DAFs can be quickly created from a list of various assets, allow donors to easily make charitable donations over time, and even enable trusteeships to pass assets on as part of your will. Meanwhile, a trust or private foundation can provide sustainable funding that can be transferred to new generations with revised interest areas without the need to create another DAF.
Philanthropy is an admirable and selfless pursuit, and it can benefit you as a taxpayer, as well. IRS regulations enable charitable giving to be used to generate tax deductions and exclusions. Generally speaking, contributions are deductible if they are paid to qualified organizations recognized as tax-exempt by the IRS.
Donating can significantly reduce your taxable income, potentially lowering how much you owe for that year’s income taxes. We have to follow the IRS’s rules closely in order to maximize your tax money savings, but it’s normally well worth the effort.
Scott Marsh Financial Has the Experience To Help
Scott Marsh Financial provides financial planning in Salt Lake City, Utah, leveraging Scott’s decades of experience in the industry. Retirement planning for high-net-worth individuals, including strategic tax planning, is just one of our specialties.
Contact us to see the difference wealth financial planning and building a legacy of generational prosperity can make in your personal and business finances.