There are lots of things to think about when investing your family's wealth. In my experience, it’s all too easy to get bogged down in the detail and lose sight of the big picture. Therefore, I’m delighted to share with you the top 3 mistakes I see families making, so that hopefully you can avoid them!
Here goes:
1) Invest for returns, not tax
Being tax efficient is a useful thing to do. Broadly, the lower your tax burden, the more of the investment returns you are likely to keep. However, there is a point at which people can become so driven by being tax efficient that they lose sight of the point of the exercise- to invest wisely and compound over time.
There is an old saying ‘Don’t let the tax tail wag the investment dog’ which is very true for many investors and families. To seek out attractive, long term returns, one needs to be driven by investments first, and tax second. Being tax efficient is great and there are some things that can be done that do not change the investment opportunity set, but be careful of becoming so tax driven that it is potentially restrictive on where you can invest your wealth.
2) Keep it simple
Large numbers do not necessarily need to equal complexity. I have known families of significant wealth that keep their affairs remarkably simple and families of more modest (yet still significant) wealth that tie themselves in knots with the amount of complexity in their wealth – from different tax structures to different investment styles, time horizons and over-engineered financial plans.
Family wealth doesn’t need to be complex, to be successful.
Keeping things simple allows you to see quickly, how things are going. It allows you to focus on getting the big things right, such as strategic direction, level of risk and having flexibility over the wealth, should needs change (which they often do!)
3) Have a small number of measurable, relevant KPIs (Key Performance Indicators)
One issue I have seen crop up over the years is when individuals or indeed families want their wealth to do lots of different things, simultaneously. The end result here can sometimes be disappointment, because ultimately, if you look hard enough, there will always be a benchmark that performed better or a high conviction investment style or approach that has been more rewarding, over a given time period.
The key for a lot of families I look after is to ensure they are, above all else, compounding their wealth over time, at a rate higher than inflation. In this case, that becomes a KPI or Key Performance Indicator. Not measured over a 3 month or 6 month period, but more likely a rolling 3 or 5 year period. Family wealth tends to be long term – short term fluctuations can often be seen more as buying opportunities than short term capital preservation events because of this long term outlook.
Having KPI’s can be very useful because they can be referred to on a regular (annual) basis at any review meetings and bring the conversation back to the key objectives that the family is trying to achieve. To keep things focussed, I would suggest having between 3 and 5 KPI’s is a good number.
I really hope the above points give you some pause for thought and can help you on your own wealth journey.
Stay safe & take care,
Louis
The views expressed in this article are my own.
This information does not constitute advice or a personal recommendation.
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