It is possible to run out of money while enjoying the fruits of wealth.
It is not just
FACT
Money’s just not that easy to come by these days, and with investment prospects for the medium to long term looking dire, it’s time to pay close attention to how much you’re spending and whether that spending involves dipping into principal.
Q: What kind of rich idiot spends principal, you ask?
Welcome to the new world.
In the past, the idea of spending 5% of wealth each year might have seemed positively thrifty. But calculations produced in the post-global financial crisis world suggest anything higher than 3 per cent could savage your fortune.
Inflation is a big killer, but there are other risks, too, that need to be considered as part of a wealth-preservation strategy.
US wealth-advisory company GenSpring Family Offices ran some numbers, which show families that blow more than 3% of their after-tax principal each year would have little chance of having any money left after 30 years.
Its investment portfolio was assumed to have been split between
50% growth assets,
45% defensive
5% cash
providing an annual pre-tax return of 8.29% (minus capital gains plus 3% inflation).
If the family spent 1 to 4 % of its principal each year, it would have a 85 to 100% chance of having at least something left in 30 years.
Take that spend up to 5 to 10%, however, and it would have no chance at all. Zero, zip, say goodbye to the good life.
Thank goodness
JP Morgan Private Bank produced a document that identifies eight challenges for the wealthy, plus suggestions for mitigating them.
It reminds us:
It is about ... Beat the odds: Improving the 15 per cent probability of staying wealthy.
The 15% refers to the percentage of people who appeared in both the original list of 400 in Forbes magazine’s roll-call of “the richest people in America” in 1982 and a generation later in 2003: only 54 remained, or less than 15%.
Some challenges to wealth preservation
SPENDING
Think of the amount of spending you do as being a percentage of your investable assets – not an absolute amount.
INVESTMENT RISK
Change investment strategy in the hope it will save them from their big-spending ways? It will not!
In the end, families will stay wealthy in one of two ways:
It is not just
- minimising tax liability,
- kena impact of the latest government policy,
- protect against increasingly sophisticated criminals
FACT
Money’s just not that easy to come by these days, and with investment prospects for the medium to long term looking dire, it’s time to pay close attention to how much you’re spending and whether that spending involves dipping into principal.
Q: What kind of rich idiot spends principal, you ask?
Welcome to the new world.
In the past, the idea of spending 5% of wealth each year might have seemed positively thrifty. But calculations produced in the post-global financial crisis world suggest anything higher than 3 per cent could savage your fortune.
Inflation is a big killer, but there are other risks, too, that need to be considered as part of a wealth-preservation strategy.
US wealth-advisory company GenSpring Family Offices ran some numbers, which show families that blow more than 3% of their after-tax principal each year would have little chance of having any money left after 30 years.
Its investment portfolio was assumed to have been split between
50% growth assets,
45% defensive
5% cash
providing an annual pre-tax return of 8.29% (minus capital gains plus 3% inflation).
If the family spent 1 to 4 % of its principal each year, it would have a 85 to 100% chance of having at least something left in 30 years.
Take that spend up to 5 to 10%, however, and it would have no chance at all. Zero, zip, say goodbye to the good life.
Thank goodness
JP Morgan Private Bank produced a document that identifies eight challenges for the wealthy, plus suggestions for mitigating them.
It reminds us:
It is about ... Beat the odds: Improving the 15 per cent probability of staying wealthy.
The 15% refers to the percentage of people who appeared in both the original list of 400 in Forbes magazine’s roll-call of “the richest people in America” in 1982 and a generation later in 2003: only 54 remained, or less than 15%.
Some challenges to wealth preservation
- spending too much
- overleveraging,
- having unprotected exposure to currencies,
- the effect of government actions and
- the unpredictable nature of family dynamics.
- Theft and the
- threat of legal action – whether warranted or not –
SPENDING
Think of the amount of spending you do as being a percentage of your investable assets – not an absolute amount.
INVESTMENT RISK
Change investment strategy in the hope it will save them from their big-spending ways? It will not!
In the end, families will stay wealthy in one of two ways:
- by managing risks or
- by beating the odds.
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