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Wealth that gets passed along generation-to-generation, sometimes known as family or legacy wealth, is one way to amass money over the years that can help families develop a sense of financial security. This wealth can take many forms, from significant sums of money to assets like real estate, stock investments, or family businesses – anything with tangible monetary value.

Inheriting this wealth puts individuals at a considerable financial advantage compared to those without such inheritance. Beneficiaries often have the opportunity to steer clear of burdens like student loans or other debts. Instead, they can channel their inheritance into revenue-producing investments, assets that grow in value, or even into buying a first home. However, sustaining this wealth across multiple generations is challenging; statistics show that around 70% of families lose their wealth by the second generation, and by the third, this number rises to 90%.

Continue reading to uncover effective strategies for creating generational wealth and, crucially, tips for preserving it for future generations.

How to Build Generational Wealth

happy family in the park piggyback ride

To build generational wealth you can pass on, you need to acquire assets or save money you won’t need to spend in retirement. You then pass down the money and assets to children or other younger relatives.

While the concept is simple, unless you had wealth passed down to you, it can be slow to accumulate assets and extra money. Fortunately, it’s entirely possible if you are strategic with your finances.

1. Invest in Stocks

woman in cafe on smartphone

Stocks are arguably one of the best ways to build long-term wealth. Some people recommend starting by investing in index funds that carry low costs. An index fund is a type of mutual fund or exchange-traded fund (ETF) meant to match the components of a market index.

The advantages to investing in index funds comes with the instant diversification and not carrying the responsibility for picking out individual stocks.

You can make money from stocks through capital appreciation and income via dividends.  For the former, you follow the tried and true investing advice of buying low and selling high.

However, in terms of generational wealth, it may serve as a more strategic decision to focus on obtaining dividend-paying stocks.

Investing in a dividend-paying stock means you purchase stock in a company which then distributes a proportional share of their profits in the form of a dividend.  These distributions can carry tax-advantages for passive income.

The mechanics behind the income are simple: you own the stock over long periods of time and in exchange for holding your position, the company distributes dividends directly to your account.

Dividend-paying stocks act as a great source of passive income and, when passed down, can continue to make money without the owner having to take any actions.

Some people who invest wisely in these stocks early can live off the dividend payments without ever needing to sell the stock.

How to Start Investing Money: Consider Using Interactive Brokers

interactivebrokers sign up

— Available: Sign up here

— Best for: Advanced and professional traders seeking low margin rates

— Platforms: Desktop app (Windows, macOS), web, mobile app (Apple iOS, Android)

Interactive Brokers, founded in 1978, is one of the largest U.S. electronic trading platforms, offering traders access to stocks, bonds, funds, options, cryptocurrencies, foreign exchange, and more. Interactive Brokers offers two primary plans—IBKR Lite and IBKR Pro—and both have no account minimums and zero maintenance fees.

IBKR Lite is most suitable for beginner and intermediate investors, offering unlimited commission-free U.S.-listed stock and ETF trading, and fixed pricing for non-U.S.-listed stocks and ETFs, mutual funds, options, and futures.

IBKR Pro is meant for advanced investors and active traders. While it does charge commissions on even U.S.-listed stocks and ETFs, it provides better execution for trades via its IB SmartRouting.

You can visit Interactive Brokers to sign up or learn more.

Don’t Forget To Do Your Research, or Simply Invest in Index Funds

index funds pie chart slice

Pairing either Interactive Brokers plan with some stock research apps and software can help you to select strong market performers and build generational wealth.

Likewise, you can use stock picking services, stock newsletters or stock investment websites to uncover individual stocks which might outperform the broader market.

Personally, I choose to invest in index funds like VTI, VTSAX or VFIAX to hold my wealth because these low-cost options have averaged more than 10% annualized returns over the last 10 years.

When combined with their ~2% average annual dividend distributions over this time period, these investments have performed very well in light of two major market downturns during that time (Great Recession and COVID-19).

Steady performance like this over several decades can build generational wealth.

2. Invest in Real Estate

examining real estate

Unlike stocks, real estate is tangible and can be an instant moneymaker for whoever inherits it.

If someone receives an apartment building where the costs for the mortgage, property fees and taxes amount to less than the money coming in from rent, the owner has immediate passive income and cash flow.

Further, passive income from real estate has several tax advantages, like having the ability to claim MACRS depreciation as a tax deduction among many other deductible expenses for maintaining the property.

While prices fluctuate, homes have consistently increased in value over long periods of time. This means that younger generations should be able to sell their homes for more than they spent on it—adding to generational wealth.

However, buying entire buildings isn’t the only way to build generational wealth from real estate. You might also choose to invest in a Real Estate Investment Trust (REIT). A REIT is a company that owns income-producing real estate.

When you invest in REITs, you receive dividends, similar to how you would for dividend-paying stocks.

Another option is real estate crowdfunding to build your real estate portfolio. To get started in online real estate investing, check out Fundrise. It’s considered the first company to successfully gather investments across several investors for the real estate market.

Entry requirements for Fundrise are low. You only need to be an adult U.S. resident and have at least $10 to invest.

11 Best Fundrise Alternatives [Accredited & Non-Accredited Apps]

3. Save More Strategically

reviewing financial information

Generational wealth comes not just from making money, but from saving it as well. As you receive dividends from stocks or real estate and are making more by selling assets, make sure to put some of it aside in a place where it will continue to work for you.

If your day job provides a 401k match, make sure to “max out” your annual contributions, add funds to your individual retirement account (IRA) and generally make use of other tax-advantaged investment accounts.

Any money you choose not to reinvest, consider putting into a high-yield savings account.

Because cash needs are always present, holding your money in one of these accounts prove to be one of the best investments for young adults or anyone else wanting their cash to earn some interest.

In fact, holding your money in one of these accounts can really make a difference over time. Nationally, the average interest rate for savings accounts currently stands at 0.59% APY. Meanwhile, some high-yield savings accounts pay many multiples of that rate.

Right now, two of the best savings accounts I’ve found on the market come from Axos Bank and CIT Bank, both of which are online-only banks.

Because of their unique business model, they can afford to pay industry-leading rates on account of not needing to pay for a physical branch network, passing these cost savings along to depositors in the form of higher rates.

To give you a sense of how high-yield savings accounts can perform compared to the national average rates, imagine depositing $10,000 into an account paying 0.10%. This account will earn $10 of interest in the first year while an account paying 1.50% will pay 15x more, or $150.

Rates might be low right now, but when they do eventually rise, these high-yield savings accounts held at online-only banks will likely increase their rates to remain competitive for gaining deposits.  That means rates will likely head north, providing you greater risk-free return on your cash.

19 Safe Investments with High Returns

4. Create a Business to Pass Down

shaking hands business

There is a reason it’s popular for small businesses to have “& Sons” in the name. People like the idea of building a business to pass down to their children. The US Census Bureau states that 90% of all business enterprises in North America are family firms.

However, while almost 70% of family businesses state they want to pass the company to the next generation, only about 30% are successful in doing so.

Businesses can be very profitable long-term, but it’s crucial whoever takes over the business has interest in the industry and knows how to operate a business.

As with any generational wealth, you need to have a plan not just for how to build it, but for how to pass it to the next generation successfully.

How to Pass Down Generational Wealth

parents with child using a computer and card

Don’t wait until you have a medical issue or are well into retirement to get everything in order to pass down your wealth. Life is uncertain. Some paperwork you’ll want to complete with a professional includes:

— Writing a will

Buying life insurance

— Creating an estate plan

— Setting up custodial accounts (these are investment accounts children gain access to at age 18 or 21, depending on the state)

— Naming beneficiaries for your accounts

The above actions ensure a smooth transition of wealth and will minimize headaches for everyone later. But perhaps just as important as transferring wealth is passing on information on how to handle money.

Combine Term Life Insurance with Estate Planning

best retirement plans work individual

To combine some of these steps, consider purchasing a term life insurance policy through a company like Haven Life.

This couples a term life insurance policy with the act of drafting a will and can help toward creating an estate plan to ensure your wealth transfers in accordance with your wishes. This extra service comes in the form of an insurance rider called Haven Life Plus.

Haven Life comes highly recommended by its policyholders and has earned recognition for its industry best practices.

For those curious about the value of term life insurance, know the following items should make the decision to purchase a policy worth it:

1. It’s simple (no cash surrender value, underlying assets, policy dividends, etc.)

2. It’s affordable (largely commoditized product with transparent pricing based on health, lifestyle and other risk factors)

3. You pay for coverage during the years you have financial dependents

4. It protects the most important people in your life against untimely death

5. It gives you peace of mind

About half of all inherited money is spent or lost investing poorly, with the other half saved.

Furthermore, Chris Heilmann, the U.S. Trust’s chief fiduciary executive, states that “Looking at the numbers, 78% feel the next generation is not financially responsible enough to handle inheritance.”

It’s not enough to give people money, you need to ensure they are financially literate.

Fortunately, there are many ways for people to learn about finance if you don’t have time to teach them personally. You can encourage them to take college courses on finance or read top finance books.

To appeal to younger generations, you can also recommend investing apps geared toward teens and young adults or even debit cards for kids and possibly credit card for kids to begin building credit.

For example, the app Acorns has a library of resources meant to improve a user’s financial literacy. The app also has features that help the user create a budget and save money.

Start Building Personal Wealth to Secure Your Family’s Financial Future

family UTMA custodial account

With the birth of my first son four years ago, I’ve spent a considerable amount of time reading into what actions I can take now to set him up for success later.

My first thought of course centers around providing him a good home, supportive environment to try, fail, improve and grow, caring for his health, and nurturing his emotional and social needs.

Laudable goals which take a lot of time, planning and effort to meet.

Another consideration centers on providing him with financial wherewithal—building generational wealth to pass down and securing my family’s financial future.

In school, I recall reading a famous passage written by America’s second president, John Adams (no relation to me) in a letter to his wife:

“I must study Politicks (sic) and War that my sons may have liberty to study Mathematicks (sic) and Philosophy. My sons ought to study mathematicks (sic) and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, musick (sic), architecture, statuary, tapestry, and porcelaine.”

In other words, the current generation sacrifices so that the next can have an easier way of life.

Such is the goal of many in America: knowledge that your current work builds toward creating a better place for your descendants.

Sadly, when you review the statistics around this effort, the odds for sustainably passing along your wealth don’t look great.

Roughly 70% of second generations lose the wealth while the odds of losing it all jump to 90% by the third.  Slim odds, to be sure.

Various elements factor into why this is: dividing this wealth across several children can dilute its single sum in the hands of wealth originator, poor financial habits of heirs, lack of appreciation and understanding of the value of money received, etc.

As a result, I’ve dispelled myself of the notion that generational wealth consists solely of transferring hard assets (house, investments, etc.).

In fact, what I’ve come to realize is that the accumulation and transmission of generational wealth comes not so much from these financial assets, but from placing a strong emphasis on developing good financial habits, supporting my child’s education, and eventually helping with making a down payment or other necessary purchase.

These are all hallmarks of a financially successful life and something I can work toward building with confidence.

However, this doesn’t excuse me from trying to build something substantial which I can pass to my son (and other children).

My new challenge involves teaching him everything he needs to know while also providing him financial assets he can understand and make good use of after my wife and I are gone.

Hopefully this article provides some actionable steps you can take toward building generational wealth and preparing to transfer it to your heirs.

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21 Best Investing Research & Stock Analysis Websites

best stock investment research software and websites

Being a discerning investor is, for better or worse, all about the homework. If you’re “doing it right,” you’re culling through useful information regularly on stock analysis websites, stock news apps, research reports and other valuable information.

Being a data-driven investor myself, I love these kinds of tools. So let me share with you my favorite investment research software, stock research websites and informational apps.

The 13 Best Investment Apps for Beginners

best investment apps beginners

So, you want to start investing, and you’ve saved up a little money to put toward your future. Great! All you really need to do now is find an investment app—preferably one geared toward a beginner like yourself.

But what exactly does that look like? We can give you an idea. Check out our rundown of the best investment apps for beginners, complete with features, investible assets, pros, cons, and more.

How to Get Free Stocks for Signing Up: 15 Apps w/Free Shares

How to Get Free Stocks for Signing Up: 16 Apps w/Free Shares

There are few better ways of turbo-charging a new investment account than snagging some free stocks right off the bat.

Sound too good to be true? Believe it or not, it’s completely normal for brokerages and investment apps to give out free stocks. Check out our list of apps that offer free stocks just for signing up. (And importantly: These are apps you’ll want to keep using, even after you’ve locked in your freebees!)

WealthUp’s Winningest Tech Stocks for 2024

best tech stocks to buy

The technology sector is always in a state of rapid change, so finding the best tech stocks for any year is no easy task.

So, how do you separate the best tech stocks to buy now from the fad stocks trading on short-lived news trends? And how do today’s small technology stocks become tomorrow’s tech giants? We’ll discuss that in our overview of the best tech stocks for 2024.

10 Best Long-Term Stocks to Buy and Hold Forever

best long term stocks to buy and hold forever

As even novice investors probably know, funds—whether they’re mutual funds or exchange-traded funds (ETFs)—are the simplest and easiest ways to invest in the stock market. But the best long-term stocks also offer many investors a way to stay “invested” intellectually—by following companies they believe in. They also provide investors with the potential for outperformance.

So if your’e looking for a starting point for your own portfolio, look no further. Check out our list of the best long-term stocks for buy-and-hold investors.

About the Author

Riley Adams is the Founder and CEO of WealthUp (previously Young and the Invested). He is a licensed CPA who worked at Google as a Senior Financial Analyst overseeing advertising incentive programs for the company’s largest advertising partners and agencies. Previously, he worked as a utility regulatory strategy analyst at Entergy Corporation for six years in New Orleans.

His work has appeared in major publications like Kiplinger, MarketWatch, MSN, TurboTax, Nasdaq, Yahoo! Finance, The Globe and Mail, and CNBC’s Acorns. Riley currently holds areas of expertise in investing, taxes, real estate, cryptocurrencies and personal finance where he has been cited as an authoritative source in outlets like CNBC, Time, NBC News, APM’s Marketplace, HuffPost, Business Insider, Slate, NerdWallet, Investopedia, The Balance and Fast Company.

Riley holds a Masters of Science in Applied Economics and Demography from Pennsylvania State University and a Bachelor of Arts in Economics and Bachelor of Science in Business Administration and Finance from Centenary College of Louisiana.