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Most of us invest to build up savings for future use. This could range from short-term goals we have, like buying a second property in a few years to generate rental income, to longer-term goals like building up a nest egg for our retirement, which might be a few decades away.
But have you ever thought about whether it makes sense to invest for someone else?
For some, investing isn’t always about growing their own wealth. Rather, the aim is to build wealth for their loved ones and to be able to leave a legacy behind for their children or even grandchildren.
While we might think such wealth-building goals are only applicable to the wealthy who have accumulated substantial financial assets, we believe this is an investment goal that isn’t exclusively reserved for the rich.
In Singapore, parents leaving behind their HDB flats to their children are, in essence, already involved in some form of wealth transfer for the next generation. Other financial assets could also include CPF balances, bank account savings, or life insurance policies. With all of these assets, there will be payouts that are made to the next generation upon death, and they all count as some form of wealth transfer.
In fact, we would even say that unless you are deliberately looking to draw on your net worth during your retirement such that you don’t have much financial assets left by the time you pass on, then you would actually already be investing for someone else, even if that isn’t your intent.
But how much is too much? And does it even make sense to be thinking so far ahead and to invest not just for your children, but even your grandchildren?
Investing For The Future (Generation)
The first thing to consider regarding your investments is to ask yourself if there is even an endpoint to the investment you make.
For example, if we buy a 20-year endowment policy today, we will know that the end date for this investment is 20 years later.
But if we buy a stock or an ETF today, the ‘end date’ for such investments is less obvious. After all, this investment that we make doesn’t have an end date. Suppose we buy an index-based ETF such as the Straits Times Index (STI) ETF that pays regular dividends, there’s no specific maturity period. As long as you and your family own the ETF unit, you are entitled to the dividends perpetually.
It’s almost like the tagline that Patek Philippe uses – “You never really own a Patek Philippe. You simply look after it for the next generation.”
In other words, whenever we invest in certain asset classes such as stocks, REITs and ETFs, we are not just investing for ourselves but also for our future generations. Our investments are like heirlooms that transfer value across generations.
Of course, this isn’t to say that all investments we make will automatically belong to the next generation and that we need to value each investment like some sort of heirloom. As long as we are still around and the investments are held in our name, we can also choose to divest them. There is nothing wrong with us selling some of our investments to fund our retirement when we are no longer working.
Can Too Much Of A Good Thing Be Bad?
Being able to provide financial support to the next generation and the generation after them should be seen as a good thing. After all, if your children and grandchildren are financially assured, it would give them the freedom to pursue other passions in life without having to worry about money.
Yet there is a popular saying that wealth does not last beyond three generations. In this SMU article, which references a study from The Williams Group, it’s shared that about seven in 10 families tend to lose their fortune by the second generation, while nine in 10 lose it by the third generation.
There are reasons for this. One such reason could be that it’s just as important for the person who receives wealth to learn how to manage and continue growing it as it is for the person who first built it.
This is where knowledge is vital. And like the wealth that is being passed down from one generation to the next. Investment knowledge also needs to transcend generations. The next generation also needs to learn how to manage, invest and grow their wealth as opposed to just spending it.
Make Right Investments, In Both Wealth & Knowledge
For those of us who are investing today for our future, we should not only be focusing on passing down our investments to our children and grandchildren. Instead, we should also focus on building up their investment knowledge so that they can be good stewards of the investments that they receive.
For those who are looking to invest in asset classes such as stocks, ETFs, and REITs, it will be vital to look for a trusted brokerage partner that can not only provide you with access to the financial market at a competitive price but also guide you and your family in your investment journey.
One such brokerage firm in Singapore would be Maybank Securities. The investment banking arm of Maybank, Maybank Securities, has a strong heritage, having met the investment needs of both retail and institutional investors in Singapore for over 60 years.
Unlike online-only brokers, Maybank Securities has a team of dealers and remisiers that can not only help you get started in your investment journey, but would also be valuable when it comes to helping with intergenerational wealth transfer. The familiarity that they provide can also help the next generation get started on their investment journey when they are of age.
Investors and their families can access multiple financial markets around the world and the different asset classes, such as share trading, IPO financing and derivatives, trading in OTC markets, warrants and CFDs.
With this, you and your family do not need to open accounts with multiple brokerage firms. With a single access via Maybank Securities, investment opportunities in different parts of the world can be yours.
Given the rise in affluence among people in Singapore, we believe generational investing will become an increasingly relevant topic for many. Whether we are the ones who are sowing the seeds today or the ones that get to reap the harvest, how we choose to invest and manage our wealth today will certainly have an impact on us and our loved ones. And with the right brokerage firm that we can partner with, this investment journey can be a long and rewarding one for generations to come.
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