Multi-Generational Investing & Finance

target2019

target2019

Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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This is a question about taking money from a fund that I'll call, for lack of more knowledge, Multi generational investing fund MGIF.

I know there have been books written about "keeping wealth in the family" and so on. Have to look around for one that provides a reasonable plan and rules for continuing to do this. But until I can informally establish a plan...

If a loan of 15K was made from the MGSF, how would you pick a reasonable interest rate and terms for re-payment to the MGSF?

My first guess is 2.0% for 4 years. Bankrate lists 4 year loans for 1.9-2.25%.

Off to do some research. Thanks for your help.
 
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target2019 said:
If a loan of 15K was made from the MGSF, how would you pick a reasonable interest rate and terms for re-payment to the MGSF?


Off to do some research. Thanks for your help.
Click to expand...

Not a loan:confused::confused:
If all this is your own money that you set aside for a purpose but you intend to invade it, you can play all the paper games you wish at whatever interest rate you want. Personally I'd use the lowest interest rate I have it invested in, if I didn't raid it, what would be my likely investment....CD or MM?
 
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I'm lost. You have money in an account set aside for passing on to heirs. You need some cash so you transfer money out of one of your accounts and into another one of your accounts. I don't understand what the role that any sort of interest rate paid to yourself is here.
 
I have some money set aside in what I think is a similar situation. It has been committed to my favorite charity when they need it for a building project which will not be for the next four years. In four years I plan to use RMD (via QCD) money to move the committed money to the charity. In the mean time, I could use some cash to pay for completing construction on my house. My only other source of additional income is taking the cash from tax deferred accounts which would have nasty tax consequences. Here is my plan:

With the approval of the head of the charity, I will loan myself half the funds set aside for the charity and keep the other half in the current account which I will call the first account. When I pay the funds back, I will place the payments into a separate second account and when that separate account is equal to the half that is in the first account, I will combine the accounts. This will all be done to keep the funds originally set aside whole by assuring the rate of return is maintained.
 
I don't see a connection between 'keeping money in the family' and the loan.

Multi Generational wealth is usually a matter of cash preservation, cash management (distributions to heirs, now and later), trusts and, mostly, tax and estate issues.

"Keeping money in the family" is often a euphemism for the game of keeping it away from the estate tax man.
 
If you have to raid the cookie jar, then you have put too much money in there in the first place.
 
marko said:
I don't see a connection between 'keeping money in the family' and the loan.

Multi Generational wealth is usually a matter of cash preservation, cash management (distributions to heirs, now and later), trusts and, mostly, tax and estate issues.

"Keeping money in the family" is often a euphemism for the game of keeping it away from the estate tax man.
Click to expand...
No euphesims in use. After reading more, I think the concept is more like a family bank. It seems that this concept goes in many directions. Some use it to teach the kids. Some use it to establish a trust. And I'm sure some use it to avoid estate taxes, euphemistically speaking.

Since I'm no expert, I'm just tossing some ideas around.
 
Meadbh said:
If you have to raid the cookie jar, then you have put too much money in there in the first place.
Click to expand...
That will be the motto on the front of this piggy bank.

I think you've hit upon something. Namely, there is too much cash, it sits there, and does nothing but lose buying power.

Do you have the latin translation handy?
Thanks for the humorous aside.
 
Hermit said:
I have some money set aside in what I think is a similar situation. It has been committed to my favorite charity when they need it for a building project which will not be for the next four years. In four years I plan to use RMD (via QCD) money to move the committed money to the charity. In the mean time, I could use some cash to pay for completing construction on my house. My only other source of additional income is taking the cash from tax deferred accounts which would have nasty tax consequences. Here is my plan:

With the approval of the head of the charity, I will loan myself half the funds set aside for the charity and keep the other half in the current account which I will call the first account. When I pay the funds back, I will place the payments into a separate second account and when that separate account is equal to the half that is in the first account, I will combine the accounts. This will all be done to keep the funds originally set aside whole by assuring the rate of return is maintained.
Click to expand...
I have to digest this while ruling my empire from the couch tonight. It is close to what I'm thinking. With a family bank situation, the members must make their case in the form of a proposal, and it gets evaluated by the chairman.

On second read, your situation is very similar to what I'm thinking about.
 
I like the concept.
I gaze out towards the front of the family estate watching the peasants tending to their activities. Recently I travelled to the rear of our family mansion and looked out towards the rear of the property admiring the wild animals feasting upon the food we had set out for them.

My DW thinks I'm pretentious and she refers to it as looking out the front window at neighbors and watching out the back window at the birdfeeder.

But that is the result of marrying a commoner. :D
 
Sunset said:
I like the concept.
I gaze out towards the front of the family estate watching the peasants tending to their activities. Recently I travelled to the rear of our family mansion and looked out towards the rear of the property admiring the wild animals feasting upon the food we had set out for them.

My DW thinks I'm pretentious and she refers to it as looking out the front window at neighbors and watching out the back window at the birdfeeder.

But that is the result of marrying a commoner. :D
Click to expand...
I'm guessing you enjoyed Downton Abbey? :)
 
target2019 said:
Open the gate, the trumpets announce my arrival.
(Spouse presses button on garage door opener.)
Click to expand...

:) Reminds of the Monty Python Oscar Wilde skit:

"Your Majesty, You shine out like a shaft of golden light when all around is darkness."



That was a recovery explanation from some one saying:

"Your Majesty is like a stream of bat's piss."


-ERD50
 
More than six months has passed since I brought up the Family Bank topic. I noticed older threads about this, so will need to take a look at those topics and learn.

The bank is moving along well. There is not much formality involved--spouse and I are the co-chairman, and we rule all. There are two sides to the family bank balance:

  • Equity investments - about 60% of the balance
  • Cash for loans - about 40%
I added an item to the charter, that we will set the lending cap to no more than 75% of available cash. Then there will always be some amount available to purchase additional equities.
  1. The first loan was taken by spouse, at 1.935%. Clever spouse already pre-paid a large amount.
  2. Also used the bank card to pay for a few entertainment things in Vienna. That money was reimbursed.
  3. For long-term equity investing, we added positions in Schwab US Dividend Equity ETF and PGX. No brokerage fees on those.
  4. For speculative gamble, placed a small wager on 21st Century Fox-A.
 
target2019 said:
  • Equity investments - about 60% of the balance
  • Cash for loans - about 40%
Click to expand...


I don't know how much $ you're talking about, so the absolute $ may be low....but 40% cash seems awfully high! Perhaps if there were 100 people eligible to take loans out of this "family bank", I could see a high cash balance for making new loans at a moment's notice...but honestly, how often do you see people asking for a loan? Are you encouraging them to take out a loan for everything? Or did you just get a repayment back, swelling the cash % from low single digits up to 40%? If you are intending this account to be passed down to generation after generation, it would be more beneficial to invest the money in something that actually at least matches inflation.

Do the math - compare the final benefit of
A) loaning a huge pile of cash out at low interest to them, then passing it down to them later on,
or
B) Investing the money in something growing significantly more than 1.95%/year, then having more money to pass on to the family?

Perhaps you can agree to co-sign for the loan that they take out with a financial institution? Same concept - you have the assets to liquidate and pay off their balance if need be, but they grow at a (presumably) much greater rate of return. Also, it gets them to see what it's like in the "real world" in having to meet income requirements, etc.?

I can see some benefit if, for instance, they would have to pay several thousand in closing costs for a mortgage that they would pay down in a few years....but for things like a no-fee auto loan with low interest, or student loans, etc., you might rethink some of your approach.
 
MooreBonds,

1. Call it 100K to make the numbers easier to calculate. This is not part of our retirement investments, checking, or savings. Cash is actually 35%, so call it 35K. Potential uses I can see are car, roof, HVAC, things like that. I did not go to this for HVAC, for example, as I obtained 0% financing for 3 years. For auto, could not get 0%, so went to this cash.

2. Not really encouraging anyone to borrow money, but looking for opportunities to use cash and avoid paying interest to other "banks".

3. On equity side (60%), anticpating growth and income to exceed inflation. On $CASH side (40%), I think 1.9% is beyond the cumulative CPI for a year. At least for now, stock is up 25% or more.

4. I see co-signing as a separate issue. The subject did come up this year as a possibility, but it is not really tied into this.

5. Everyone involved has higher credit ratings, and earns enough to be self-sufficient. Each can get a loan or mortgage.

We're not necessarily carrying out a monolithic plan that can't adapt. This article probably presents the concept better than I can:

www.jamesehughes.com/articles/FamilyBank.pdf

I understand your main point, which is that putting this all into US Total Stock index or a balanced fund will produce better results. That could be an option at some point. For now I have identified two ETFs and begun positions - SCHD and PGX. Other stock held is a large telecom.
 
Went 6 months without reporting back.

1. 18.02% - Calculated XIRR for 2016, including all transactions for Brokerage + Checking.
2. 12.43% - Schwab calculated performance for Brokerage account only - 2016
 
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