Comparison: Real Estate Portfolio vs. Stock Portfolio is included! (Women and financial planning)

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A woman in her thirties or forties is likely to encounter numerous tasks and responsibilities in her daily life – career, family, household, personal development. But have you ever thought about how your financial decisions today could influence not just your immediate future, but that future generations as well? (Yes, your children and grandchildren as well.) I want to be the rich grandma and make the life of my family easier. So welcome to the world of multi-generational investing, where your stock portfolio becomes an effective tool for building lasting family wealth.

Understanding Multi-Generational Investing

The essence of multi-generational investing is creating a financial legacy that extends beyond your lifetime. It’s a long-term strategy that focuses on growing wealth that you can pass on to your children, grandchildren, and even great-grandchildren. This approach requires patience, discipline, and a shift in perspective from short-term gains to long-term growth. Of course, you might immediately say that you need to get your own finances in order first, but there’s a solution for that too!

Motivation 

For sure you can say, you want to get your money first and see, and also enjoy, but I do believe for a female the wellbeing of her family is a great motivation. When my first son was born I immediately opened him a high yield corporate bond account and also a stock portfolio under my name which I can transfer to his name over time or as a worst case scenario he can inherit it (but I want to live very long). He gets there every money he receives from grandparents as a gift during the next decades and also I do transfer some money for him and also for the siblings account who was born 18 months apart, so they have separate accounts. I buy them ETF-s and there are other assets that are going to belong to my children later on. This money is gonna be great for a life start or they can increase the size of their portfolios and be thankful that mommy saved them two decades in advance.

I handle my finances separately from their portfolios because it is easier to do so. But one thing is sure, not only passing money is my motivation, but to make them wise and able to handle wealth, and I do not spoil them a lot. I do believe they will understand that we live better than average soon, but I do not want them to use this as an excuse in school or in life. Making spoiled kids is too easy nowadays unfortunately and I try to avoid this mistake. Kiddos nowdays doing drugs and hard parties where the parents forget then to raise. (OK. I maybe sound like my own grandom now, but better to be careful!)

Let’s first clarify: Why are stocks suitable for multi-generational wealth building?

Historically, stocks have outperformed other asset classes over the long term. While they can be volatile in the short term, they have shown remarkable growth potential over decades. This makes them an excellent tool for multi-generational wealth building. According to historical data, the S&P 500 index has provided an average annual return of about 10% over the long term. This means that $10,000 invested today could potentially grow to more than $108,000 in 30 years, assuming this historical performance continues.

Jeremy Siegel’s 1994 book Stocks for the Long Run, which processes a large amount of historical data from 1802, shows that during the period under review stocks outperformed other assets. Of course, there are objections to this data, according to which the yields of stocks and bonds have not differed greatly from each other for quite a long time. Of course, let’s not forget that this is just a statistic based on the USA. So remember: the world’s fastest growing economy was the USA during this period and in the past only dominated a small part of the stock market exposure, so if this was not an American-based study, then the result would not be the same! So it is not at all certain that this trend will continue in the next 100 years, and it is also not certain that USA will remain the center of the world.

https://verdadcap.com/archive/do-stocks-always-outperform-bonds

Building a Multi-Generational Stock Portfolio

Start with a Solid Foundation

Start with blue-chip stocks. These are shares of well-established companies with a history of stable growth and dividend payments. Examples include companies like Johnson & Johnson, Procter & Gamble, and Coca-Cola. These stocks provide stability and income through dividends, which you can reinvest to increase returns. For instance, Johnson & Johnson has increased its dividend for 60 consecutive years, demonstrating remarkable consistency that can be beneficial across multiple generations.

Diversify Across Sectors

As they often say: don’t put all your eggs in one basket. Spread your investments across different sectors of the economy. This might include technology, healthcare, finance, consumer goods, and energy. Diversification helps mitigate risk and ensures your portfolio can withstand economic changes over the decades.

Example of a diversified portfolio with individual stocks (Not a financial advice, as anything on my blog, so do not copy this 1:1!!!):

20% Technology (e.g., Apple, Microsoft)
15% Healthcare (e.g., UnitedHealth Group, Pfizer)
15% Finance (e.g., JPMorgan Chase, Berkshire Hathaway)
15% Consumer Goods (e.g., Amazon, Walmart)
10% Energy (e.g., ExxonMobil, NextEra Energy)
10% Industrial (e.g., Caterpillar, 3M)
10% Real Estate (e.g., American Tower REIT, Prologis)
5% Utilities (e.g., NextEra Energy, Duke Energy)

Look for Growth Stocks

While stability is key, don’t shy away from growth potential. Allocate a portion of your portfolio to growth stocks – companies with above-average growth potential. These might be in emerging industries or innovative companies disrupting traditional sectors. Remember, what seems cutting-edge today could be the blue-chip stock of your grandchildren’s era.

Examples of current growth stocks:

Tesla (Electric vehicles and renewable energy)
NVIDIA (Artificial Intelligence and graphics processing)
Shopify (E-commerce platforms)
Square (Financial technology)