Who doesn’t dream of having more money than they’ll ever be able to spend? Dynastic wealth does have its charms. Money that lasts for generations (e.g., forever). Family and business legacies that span centuries. And names like Vanderbilt, Mellon, Rockefeller, and Ford that are synonymous with financial success.
But the $64 billion question is: How do you create a family dynasty? The first step, of course, is creating massive wealth. You can’t pass along a family legacy or a fortune to your children, grandchildren and great grandkids until you’ve accumulated $10 million or $30 million or $100 million or more. Jaleigh White, director of Baird Family Wealth, offers this definition of a family dynasty: “The generation that has created the wealth will not consume it during their lifetime.” We’re talking about money that’s built to last a long, long time. And, more importantly, money that stays in the family forever if invested and managed properly.
Accumulating such a hefty sum may sound impossible. For many, it is. No doubt, family dynasties are not built on hourly wages or median salaries. And it’s very rare (unless you’re a Warren Buffet-like investing guru or lucky enough to build a big equity stake in winning stocks like Apple and Nvidia very early on) to create a dynasty simply by being a smart or maxing out your 401(k), financial experts say. But never say never. With a streak of entrepreneurial zeal, a little luck, a lot of hard work, and world-class talent, building a dynasty is most certainly possible.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Building a family dynasty
New dynastic fortunes are born every day, say financial advisers who work with ultra-high-net-worth (UHNW) families. There are 6,000 to 7,300 family offices in the U.S. that oversee the finances of Americans who have created significant wealth, according to consulting firm Deloitte.
But how, exactly, are fortunes made? In the same way that Cornelius Vanderbilt built his transportation empire in the mid-1800s, John D. Rockefeller forged his oil monopoly in the early 1880s and Henry Ford created his automobile wealth-building machine in the early 1900s. “The vast majority are business owners,” said White. “It’s something that a family can connect to through generations. It’s much more meaningful.”
There are 33.3 million small businesses in the United States, according to the U.S. Small Business Administration. So, the odds of some family businesses hitting paydirt, becoming incredibly successful, and catapulting their owners into the league of dynastic families are higher than people think.
Three ways to create dynastic wealth
There are essentially three ways to create substantial wealth, according to Brian Gaister, co-founder and CEO of Pennington Partners.
- You built a company you founded.
- You’re a super-high-end earner, a C-suite-type who brings home $30 million to $50 million a year.
- You’re a world-class athlete or entertainer or tops in your profession, whether it's law, investment banking or medicine.
“You’ve either built something from scratch, or you are in a very elite class of (successful people),” said Gaister.
Often, newcomers to dynastic wealth build a mega-successful family business that generates large cash flows that are eventually sold, creating a cash windfall or so-called “liquidity event,” says Nancy McColgan, who advises UHNW clients as leader of the family office division at Verdence Capital Advisors.
“You need to have some type of initial investment in a business that will eventually render enough wealth through some type of liquidation event to create dynastic wealth,” said McColgan. “There’s a lot of new dynastic wealth in the U.S. that’s been created in the last 50 years. Thanks to the dynamic U.S. economy, it can be created by people who were not born into wealth.”
Certain industries, like technology, have made a lot of equity billionaires. Mark Zuckerberg, co-founder of Facebook and CEO of Meta, for example, is worth $208 billion, according to Forbes.
If you want to create dynastic wealth, playing it safe in a regular job working in a cubicle 9-to-5 won’t propel you into the league of dynasties. You’ve got to go for it.
“Starting or buying a business definitely requires the ability to take risks,” said McColgan. If you want to build true wealth, you must understand the concept of scale, or the ability to sell a product or service on a national or global stage, allowing you to make massive profits. “It’s a mindset,” said White. “You have to be willing to fail. It’s a hard road, but it is the one that is most likely to lead to legacy wealth.”
And you don’t need to make your fortune in a flashy business like making chips that power artificial intelligence reasoning, owning an NBA franchise or founding a pharmaceutical company that cures disease. Fortunes can be made in more mundane businesses, like HVAC, plumbing or last-mile delivery logistics.
Consolidation is rife as big companies and private equity investors seek growth and cash-generating businesses. “We have clients (who own their own businesses) that are being bought out right now in big numbers,” said White. “And that creates the monetization event that creates legacy wealth.” Earlier in her career, White recalls a family that ran a mortuary business that got rich by asking, How do you build a better body bag? They did just that and amassed a fortune.
Making a fortune stick
After the fortune is made, the next step is creating a plan to build a lasting family legacy and investment strategy to ensure that the money outlives whoever possesses it. “A key step is preparing the future stewards of the wealth,” said White. That’s when professional wealth managers huddle with the family to help answer key questions that will decide whether the dynasty endures. “How do you make sure everyone, even though there is family wealth, feel like they have a life purpose?” said White. “How do you talk about and create shared family values? How do you talk about the vision and mission for that family legacy wealth? What role is the money supposed to play in their lives?”
To succeed in building a dynasty, families building enormous wealth must not only find ways to maximize financial capital, but human capital as well, adds Gaister. Towards that end, wealthy moms and dads must connect with their children and give them unconditional support and love. The goal is to assist the next generation in building life skills, such as resiliency and being able to bounce back from failure, so they are prepared to continue the legacy.
To drive his point home, Gaister says he recently spoke with a person whose family owns a sports team and runs the family office. “He’s very savvy,” said Gaister. “He’s thinking about, ‘how do we invest capital for multiple generations? How do we build more companies and what does that look like.’ They built the human capital within the family the right way.”
Keep dreaming and planning
Don’t give up on the dream of building a family dynasty. You may one day have Rockefeller- or Vanderbilt-type wealth, too. Or at least something close to it.
“If things go right, you get a break, you work hard, and you open a business and scale it, it can happen,” said White. “Absolutely. It happens every day.”
Read More
-
Dow Adds 516 Points on Broad Optimism: Stock Market TodayEasing trade war tensions and promise from early earnings reports has investors looking on the bright side to start the week.
-
Dave Ramsey Tells Us the Biggest Retirement Mistake You Can MakeThe talk-show host, author and podcaster tells Kiplinger what people can do to ensure a happy retirement.
-
Dave Ramsey Tells Us the Biggest Retirement Mistake You Can Make
The talk-show host, author and podcaster tells Kiplinger what people can do to ensure a happy retirement.
-
I'm a Wealth Adviser: These Are the Pros and Cons of Alternative Investments in Workplace Retirement AccountsWhile alternatives offer diversification and higher potential returns, including them in your workplace retirement plan would require careful consideration.
-
I Have to Take a $22,000 RMD by the End of the Year and I Don't Need the Money. What Should I Do With It?We ask financial experts for advice.
-
I'm a Financial Planner: If You're Within 10 Years of Retiring, Do This TodayDon't want to run out of money in retirement? You need a retirement plan that accounts for income, market risk, taxes and more. Don't regret putting it off.
-
Five Keys to Retirement Happiness That Have Nothing to Do With MoneyConsider how your housing needs will change, what you'll do with your time, maintaining social connections and keeping mentally and physically fit.
-
Six Warren Buffett Quotes Every Retiree Should Live ByThe 'Oracle of Omaha' knows a thing or two about life, investing and retirement.
-
You Retired and Stopped Commuting. How Do You Lower Car Insurance Costs?Retiring usually means cutting out that daily commute which could make you less risky to insure. Does that mean your car insurance costs will drop? Here's what you need to know.
-
You May Want To Think Twice Before Selling These Four Assets in RetirementSitting on little gold mines? It's natural to want to cash out when you retire. Here’s why you may not want to.
