Wealth earned by one member of a family may be invested to benefit that generation and successive generations in that family. Anyone can make those investments at any time, but most do not.
A popular investment type before the global financial crisis of 2007 was to flip houses. An investor would: (i) get a loan, (ii) purchase a dilapidated house, (iii) renovate it, (iv) sell it at a profit and (v) repay the loan. In this way, the investor made a one-time profit on the investment. This is not generational wealth if the investor spent the profit on things that do not transfer across generations, like food, rent and travel.
NATURAL GENERATIONAL INVESTMENTS.
The easiest, most affordable and least-effort generational investment is to plant a mango tree or other large fruit tree. In 5 years, you may enjoy more mangoes than you can eat. After you die, your children who inherit your property may enjoy more mangoes they can eat during their lifetime and similarly for their children – all because of your initial investment.
Many of our fore parents who resided in rural areas maintained fruit trees, but many of those who grew up in urban and newer sub-urban residential developments did not. Excuses abound. Some claim they do not own the house or land they are renting, so they will not plant for the property owner and later tenants to reap. Some claim they do not want to see dropped decaying fruit around them.
During our lives, all of us will reap from what others planted. Why deprive others of similar benefits? What gives us the right to break a functioning investment cycle we found?
ONE-GENERATION BUSINESSES.
Many Barbadians have small businesses which are not set up to be generational. They were set up for specific benefits like: paying the mortgage, funding their children’s overseas education, supplementing their income, paying their after-retirement expenses etc.
The operation of these types of businesses depends entirely on the technical skills of the owner. If the owner is sick, the business temporarily closes until the owner recovers. This business permanently closes on the death or retirement of the owner.
MULTI-GENERATION BUSINESSES.
A business can make generational wealth if it pays dividends across generations. If you invest an initial amount to start a business and the annual profit is 10% of your initial amount, the initial amount can be repaid in 10 years. Then the magic happens.
For the rest of your life, you will receive 10% of your initial investment adjusted for inflation every year. After you die, every year your estate will receive 10% of your initial investment adjusted for inflation for as long as the business remains operational.
BUSINESS RISKS.
It normally takes a set of patient investors to fund a generational business that can give a meaningful return on the investment. The problem with investing in businesses is that most people who can invest have lost and/or know someone who lost their investment by trusting tricksters and/or inexperienced and unethical business persons. Their new rule for investing is ‘once bitten, twice shy’, which also translates to ‘nothing ventured, nothing gained’.
Investing money is risky. Some useful rules on investing to reduce these risks are to not invest: (i) more than what you are prepared to lose, (ii) with unethical persons, (iii) with incompetent persons, (iv) in poorly managed companies, (v) in companies that are selling products where there is limited demand in the market and (iv) in companies that are not likely to be profitable in the future. For married men, there is a seventh rule – do not invest when your wife tells you not to.
INVESTMENT OPPORTUNITY.
If you want to invest, then you need an opportunity to do so. One common opportunity is to invest in mutual funds. Investors’ money is pooled and invested in diverse companies and government instruments like Treasury Bills. Investors trust money managers to make investment decisions in their interests. However, in 2018, money managers in Barbados sacrificed their ethical integrity and legal fiduciary duty to their clients by voting to allow the Government to confiscate a significant part of their clients’ money. They have not apologised to this day, so one bite was enough for me.
I have decided to start a generational business to demonstrate generational wealth to whomever wants to experience it. The aim is for investors to receive an annual return on their investment for as long as the business remains operational. The business is designed to remain operational across generations while requiring minimal maintenance, employees and management.
Investors and their estates should receive 8% to 10% of their investment every year for the life of the business adjusted for inflation. Therefore, the initial investment should be repaid in 10 to 12 years. The actual percentage and repayment duration is to be verified after submission of the contractor’s construction cost.
FINANCING.
To finance the venture, I can: (i) visit a bank and get a 10-year loan and own 100% of the business or (ii) invite investors to become part owners of the business with their percentage of ownership being the percentage of the initial project cost their investment represents. I will start by pursuing option (ii).
Once the initial project costs are paid, there is no need for additional funds or additional investors – each investor’s percentage of ownership should remain fixed and not reduced by the entry of additional investors.
I cannot reveal the type of business at the moment given the competitive nature of business. Also, investors’ funds are not required until the contractor is ready to break ground, which may be within 6 months. If you are interested, you may contact me via e-mail.
Grenville Phillips II is a Doctor of Engineering and Chartered Arbitrator. He can be reached at NextParty246@gmail.com
The blogmaster invites you to join the discussion.