How old money hangs on to its wealth – the 1/3 rule!

Britain is one of the most class conscious countries in the world today. Even in the modern era where equality is becoming the norm, Britain has been stuck behind as we still put royalty and those bestowed with titles on elevated platforms. When it comes to status, we don’t just look at their monetary standing, we make distinctions based on the nexus of money and social importance. This leads to contrasts such as “old money” and “new money” with the former connoting generations of life on country estates and Oxbridge credentials while the latter is something flashier.

The Grosvenor family have been wealthy for over 300 years and practically define old money in Britain. The family has vast holdings of land in the UK which have been built up over the generations and recent estimates put their wealth at over £8 billion.

And like them, there are other historic old money families. This type of wealth has not only survived business cycles but also wars, invasions, the collapse of empires, revolutions, and natural disaster. In order for family wealth to persist through so many centuries, government and disasters, something more is needed than ordinary investment skill. This rare kind of success in wealth preservation requires a longer view, infused with a sense of history and a keen appreciation for worst-case scenarios that too frequently become real.

When one inquires of family members and representatives as to what it takes to preserve wealth over centuries and not just cycles, the frequent reply is “a third, a third, and a third.” This is shorthand for dividing one’s wealth into one-third land, one-third gold, and one-third business.

That is the basic premises for generational wealth building. Even though some liquidity in the form of cash is needed for basic day-to-day expenses, the majority of an intergenerational portfolio should be spread out in an equal mix land, gold and business interests. These three asset classes tend to outlast and outperform the majority of other assets over long periods of time.

Land, Gold and businesses have one thing in common that separate them from the majority of other assets over the long-term; they are amongst the least risky and least volatile investments to own.

Yes, even cash is more riskier than these assets over a long time horizon due to inflation eroding the purchasing power, and thus value, of cash. Paper currency in the history of the world has eventually proved worthless and there is little reason to believe the reigning paper money champions such as the dollar, pound, euro or yen will prove different in the fullness of time.