Think about the changes the world has seen since 1916, the year of the Battle of the Somme, and still some twenty years before the worst of the Great Depression. Then try to imagine what changes the world will see by 2116.
Successful investors know successful investing occurs over decades and across generations. Short term fluctuations settle out. Long term trends dominate. And you see growth. Every decade so far has seen growth, no matter the ups and downs inside that decade. Population and technology are expanding and so is Australia’s GPD. The long term forecast is strong growth across the generations.
This idea goes down well with most clients. They love their kids and they like the idea they can set them up financially, or at least offer some financial assistance, down the track.
Recent meetings have taken this ideas to new lengths. Many Dover clients are GPs in their late fifties or early sixties, expecting to work on a reducing basis, at a comfortable pace and place for another 15 or so years. They first implemented Dover’s strategies over 20 years or so. Sensible and low risk investments in residential property and Australian shares, owned through tax effective and asset protected companies, trusts and SMSFs, with a judicious use of deductible debt as a growth accelerator. The strategy has worked very well.
The Russell ASX 2016 Long Term Investment Report tells us Australian property averaged 10.5% and Australian shares averaged 8.7% since 1995. The 100 year averages are not far behind.
These clients are in the top 1% of the wealth population, enjoying their work, and still adding to their stock of capital every year. They are in a state of abundance. Financially they are fine, with all realistic financial needs covered for life, for them and for their kids too.
It was not that hard to achieve: own a home in a good suburb of Melbourne or Sydney, pay maximum super every year and invest for high growth in Australian shares, negatively gear a property or even a small portfolio of properties, and possibly inherit a bit from their own parents.
It’s not uncommon for these clients to be sitting on between $5,000,000 and $10,000,000 of net assets. You cannot tell by looking at them. They are too smart to flaunt it. They know it’s just money anyway, and they are more focused on doing a good job by their next patient, planning their next holiday, staying healthy and playing with the grand-kids again next Wednesday afternoon. Not necessarily in that order though.
Extrapolate $5,000,000 to $10,000,000 of net assets out for another 15 growth years… the net assets grow to somewhere between $15,000,000 and $30,000,000 by ultimate retirement at age 75.
That is significant wealth.
If your child is age 25 now, and has their own child at say age 35, in 2026, your grandchild will probably be alive 100 years from now.
Think about it: your grandchild will still be alive in 2116. 100 years from now.
That’s how long you should be investing for. That’s the time frame for your next property acquisition, and your next share purchase. 100 years. Until 2116. The expected lifespan of your yet to be born grandchild.
Filter out the static. Think clearly, and for the very long term. What should you invest in now for the lifespan of your grandchildren? The answer is well located properties, particularly in Melbourne and Sydney, on their own bit of dirt (ie not most apartments). And quality blue chip Australian shares, such as the big diversified resource companies and the big banks, and Australian index funds, paying regular and stable franked dividends.
They have to be Australian. Too tax inefficient and too risky to not be Australian.
Think about what structure you should use. These assets should not be in personal names, because persons die. They should not be in super because super has to be paid out in your life.
Tax efficiency is critical, as is asset protection. Legislative risk is real too: 100 years ago we did not have a Federal income tax, let alone a capital gains tax or a GST. No one knows what the legislative environment will look like in 2116.
The most tax efficient asset protected long term family investment structure looks like this:
Over 100 years everything bad that can happen will happen. There will be wars, deaths, divorces, depressions, climate changes, and everything under the sun.
Do you love your grandchildren?