any limit to amount that should be put in PP to build wealth over generations?

[PPConvert]

i am curious as to whether there is any limit to the amount of wealth that someone should put in the PP if the intent is to build wealth for one's family over the course of generations or centuries.  in other words, say someone got to the point where they had an awful lot of money, like $100M.  is there any reason, such as taxes or otherwise, that the PP should not be used for that entire amount if it was a long term strategy to build huge amounts of wealth?? 

[pplooker]

I think this question goes back to what you believe.

I believe, for instance, that if the intended holding period is forever, every penny should be in equity a la Warren Buffett.  That's truly optimistic, as it requires the person who holds that belief to believe that businesses will provide more and more value that didn't exist before over time.  I do believe that however as this strikes me as the clear course of history.

However this is only true in a very broad and some might argue localized sense.  There are after all parts of the world where people live exactly as they did 3,000 years ago.  Still I believe that if one figuratively owns the world via indexing, the world will keep moving on.

If I were to send a sum of money into the future for whatever reason, say 500 years, I believe this is the route I would take.

However, if you're a person, your holding period is likely but a few decades.  You must give up some reward to reduce some of the risk out of sheer necessity because you can't just wait another century or two for something to rebound or correct itself.  You start carving out slices, some in bonds, some in cash, etc. to accomplish a portfolio that can keep you in some kind of wealth while being able to grow to some degree.

You find yourself in the unenviable position of having to predict the future when you cannot.  There’s multiple ways of dealing with this problem, and the Permanent Portfolio is one of them.

So then the question becomes, do you want this sum of money to be there for an immediate successor generation?  I feel if the answer is yes, and the Permanent Portfolio is the allocation you feel will accomplish such a goal, why not dump the whole thing in there?

Personally if this were a situation where I had a discrete sum I was going to launch into the future, one that wouldn’t be spent until I was long dead and existing generations were gone as well, I’d load up with domestic and international small cap stocks, possibly offset with some allocation in long bonds with low or no credit risk and just let it ride and let the future inheritor decide what to do with it all.  The way I figure it, my descendent barely knows who I was in all likelihood, has no sense of me, and should be taking care of himself and anything he gets from me is a bonus, so why not go big?

But if it were my children, while I don’t have any, I think I’d keep it all in whatever allocation I felt was most prudent which may very well be the Permanent Portfolio.

While I personally believe in trying to leave something behind to improve the future, we have to bear in mind that their wealth will come from their own hand, ultimately.  Inherited fortunes have a habit of dwindling and losing potency.

[PPConvert]

thanks very much.  those are fascinating thoughts, and exactly the kind of big picture discussion i was looking for.  i would love to know what craigr and medium tex thought about these kinds of issues.

[craigr]

My thoughts after looking at how larger multi-generation trusts do things is that they in fact are very widely diversified. They own stocks, bonds, cash, hard assets, real estate, private equity, etc. If I had a large portfolio that I wanted to last for generations I'd also want it protected against foolish heirs as well which is the biggest risk honestly. There is a lot of truth to the adage: "From shirtsleeves to shirtsleeves in three generations."

I would not put every penny into equity though because human history has shown that countries come and go, companies come and go, governments come and go and societies change. I'd want to have the money spread far and wide. One of the reasons I like the Permanent Portfolio is because it does, in a small way, emulate what some of these trusts are attempting to do when they have much larger resources to protect.

For instance I don't think the Rothschild fortune is exclusively in stocks but is widely spread about. Nor is the Rockefeller fortune likely concentrated in stocks alone.