November 2018

Start Young, Grow Strong: Why It Can Pay to Get Future Generations Investing Early

The U.S. is in the midst of one of the largest wealth transfers in history. A study done by the Center on Wealth and Philanthropy at Boston College estimated that roughly $59 trillion in wealth will be transferred in 93.6 million estates through 2061.1 Over the next 10 years, ultra-high-net-worth individuals alone are expected to transfer $3.9 trillion in assets to future generations.2

This historic period provides an opportunity to educate younger generations about the importance of investing early in life to maximize wealth-building capabilities and to provide vehicles through which wealth can be transferred. For many young people, investing for the future might seem like less of a priority than more immediate spending needs. However, a key to long-term financial stability is to begin investing early to allow the power of time, compound interest, dividend reinvestment and other factors to work to their greatest possible advantage.

Finding the Right Vehicle

When examining investment opportunities and vehicles for wealth transfer, there are a number of vehicles to consider, each of which delivers different benefits. Some of the most popular include:

Mutual funds: These funds pool money from many investors and invest it based on a defined set of investment objectives and goals. The pooled money is used to purchase a portfolio of stocks, bonds, other securities or assets, or sometimes a combination of these as determined by the Fund’s objectives, style and investment strategies. Each share of a mutual fund represents part ownership of the fund and gives the investor a proportional right, based on the number of shares held, to income and capital gains generated from the Fund’s investments. Mutual funds can offer diversification, liquidity and flexibility, which can provide certain advantages over purchasing individual stocks and bonds.

Custodial accounts: These accounts can be opened for dependents who are less than 18 years old. While the account is opened in the child’s name, a financial custodian controls the monetary decisions, including where to invest the account’s assets. While there are no requirements that the money be used for education, any withdrawals from a custodial account must be used for the child’s benefit outside the normal cost of care. The child has the ability to take control of the account and the assets in it on his or her 18th birthday. Custodial accounts are established either under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), depending on your state of residence.

Trusts: A trust is a fiduciary relationship between multiple people: a trustor who sets up the trust and provides the initial assets, a trustee who manages the assets, and a beneficiary who ultimately will own the assets. Trusts come in many forms and can be tailored for different circumstances, giving the trustee control over how the trust assets are disbursed. They can be an excellent way to transfer assets to beneficiaries or heirs.

Lessons in Future Wealth

Teaching children the value of investing is a lifelong gift. However, it can be difficult to discuss money or the thought of a future bequest. To get the conversation started, you may focus on issues such as:

  • Future goals: What does your child want to accomplish – and how can investing for college, opening a business, or purchasing a home, for example, help them achieve those goals?
  • Values: What are the issues that matter to your child and how can investing and managing wealth transfer wisely help them support causes that matter to them?
  • Family legacy: What legacy would your adult child like to leave? What role can investing play?

You’ve worked your entire life to accumulate your assets and build wealth. By getting your children started early on the path to making wise investment decisions, they can put themselves in the best position possible to realize their goals and make a meaningful impact on the world.

Learn More

Click the link to learn more about the types of accounts offered at Janus Henderson.

Sources

1 “A Golden Age of Philanthropy Still Beckons: National Wealth Transfer and Potential for Philanthropy,” Boston College Center for Wealth and Philanthropy, 2014. Retrieved from: http://www.bc.edu/content/dam/files/research_sites/cwp/pdf/Wealth%20Press%20Release%205.28-9.pdf
2 “Preparing for Tomorrow: A Report on Family Wealth Transfer,” Wealth-X, September 2016. Retrieved from: https://www.wealthx.com/about-us/press-news/press-releases/2016/wealth-x-and-nfp-unveil-second-family-wealth-transfer-report/