How to Create an Investment Portfolio to Suit Your Family's Needs

The process of building an investment portfolio for an extended family trust can be as unique as the family investing those assets. Many factors come into play: generational preferences and expectations, individual needs for income, liquidity, and cash management, as well as management of any concentrated stock positions. 

Here, leaders from Wells Fargo Private Bank and Wells Fargo Investment Institute share tips for families to help with the creation and maintenance of an investment portfolio that addresses the needs and desires of each generation. 

First, consider all points of view

Building a portfolio requires attention to current circumstances, immediate needs, and future financial goals. When more than one generation has a stake in the outcome, good communication becomes imperative, says Marc Doss, Wells Fargo Private Bank Regional Chief Investment Officer for California/Nevada. As more families seek to create multigenerational portfolios, they may find that loved ones have different points of view regarding the purpose of wealth. 

In the past, the conflicts that typically arose between older and younger generations centered on how aggressively a portfolio might be invested. While the older generation might be focused on the goal of capital preservation and income, the younger generation, with their longer time horizon, could be more focused on pursuing the growth of their assets.

Depending on their stage in life, family members will likely want different things from their investments. Younger family members may be considering getting married or having their first child. In contrast, the older generation may be thinking about whether to step back from business or family responsibilities and pursue other interests. 

It's important to listen to everyone's point of view or you run the risk of alienating certain family members. For example, a millennial may care greatly about environmental, social, and governance-related investing, whereas his or her parents may not.

Consider the impact of longevity

One change over the past decade that has made these conversations easier is longevity: People continue to live longer compared to previous generations. Many older people now lead active lives well into their later years, and Doss recognizes that this can have incredible implications. "In the old days, the tendency was to recommend having a percentage of stock in your portfolio that was equal to 100 minus your age," he says. "I would argue that's no longer the case because people are living so much longer and inflation can eat into your capital." 

Doss says the older generation should consider taking on more risk to keep up with inflation. "For example, stocks can potentially generate both income and capital appreciation for a total return approach. Real estate investments may also help outpace inflation."

Go slow and make a plan 

Methodically uncovering what you and your family really want your wealth to accomplish is a very important step. When properly thought out, an agreed-upon plan can help in pursuing long-term success. The process of building a multigenerational investment portfolio can take time, but that's a good thing.

"As a society, we tend to put a premium on fast solutions," says Tracie McMillion, CFA®, Head of Global Asset Allocation at Wells Fargo Investment Institute. "To some degree, it's hardwired into us as humans. But the reality is, the most complex thinking isn't supposed to be rushed."

In today's world of easy access to the latest news and information, it's easy to make hasty decisions. Taking the time to ensure all family members have investment options that align with their investment goals and values is a critical step toward achieving overall harmony.