The Stewardship of Wealth by Gregory Curtis

Author:Gregory Curtis
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-10-17T16:00:00+00:00

Current Claims versus Growth Claims on a Portfolio

One useful way of thinking about the initial steps of portfolio design is to ensure that the portfolio is built to satisfy—on a prudent basis16—both current and future claims on it.17

Current claims include the family's spending needs, including taxes, plus any additional lifestyle needs such as travel, philanthropy, and so on. Future claims (or growth claims) require that the portfolio will maintain the family's purchasing power (that is, net of inflation) over time, net of taxes and all fees and costs, and will also likely include the family's desire to enhance its financial status on a net-net basis.

Looked at in this way, we can see that the family is exposed to three primary risks. The first and most urgent risk is that the family could fail to meet its spending needs. The second risk is that the family's lifestyle might not be maintained over time: Even if their income stays the same, its purchasing power will decline in the face of inflation. Finally, the family could overcome those two risks but still fail to enhance its wealth across the generations. This last risk is the most difficult to overcome, not least because it is decidedly the case that families tend to compound faster than capital.18

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