When you reinvest your profits over long periods of time, your wealth grows much faster, enabling you to leave a lasting legacy for your family which continues to grow over generations.
Albert Einstein famously said:
Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.
One thing that the world’s richest and most influential families seem to have in common is a good eye for investments and a lot of time. The Rothschild family, for example, famously have a 200-year record of growing and preserving their wealth.
In the early 1800s, around the time of the Napoleonic wars, they speculated on the stock market. They bought sensible investments and held them. Today they hold a dynasty of businesses and remain spectacularly wealthy.
Charlie Munger said:
“The first rule of compounding is to never interrupt it unnecessarily”
This is why “keeping it in the family” is so critically important to building real generational wealth - you want to avoid dividing the wealth into smaller pieces via inheritance each generation. Keep the large pot of gold together and it compounds much faster than 16 smaller pots divided for inheritors, after tax.
As families grow faster than businesses, ensuring the growth of financial capital exceeds your human capital over time is incredibly difficult.
The family must become a learning organisation, inspiring the next generation of entrepreneurs and wealth builders to ‘top up the pot’ and keep the wealth engine growing as it supports a larger and larger group of family members.
This week’s podcast is example of a 7th generation family holding company, stewarded by a Family Council which supports over 500 family shareholders. It’s an extraordinary story of compound interest, enduring capital and family governance.
Don’t miss this extraordinary conversations with Peter Evans
, personne de confiance to legacy families around the world and 5th generation member of Laird Norton.