Preserving wealth is hard. Keeping it across generations is even harder.
From Cornelius Vanderbilt to the forgotten names on Australia’s early rich lists, history is full of cautionary tales: vast fortunes built in one generation, then squandered in the next. Why is this such a common pattern? And more importantly, what can today’s families do to avoid the same fate?
As financial planners, helping clients build wealth is only part of the job. Preserving it—through investment decisions, education, and behavioural guidance—is where true long-term value lies. Let’s explore what history and modern research reveal about how wealth disappears, and what can be done to avoid it.
The Vanderbilt Lesson: From Richest to “Not a Single Millionaire”
In 1877, Cornelius Vanderbilt—then the wealthiest man in the world—left an inheritance of over US$100 million to his son, Billy. Within six years, Billy had doubled the fortune through astute business decisions. Yet by 1973, not one of the 120 Vanderbilt descendants gathered at their namesake university in Tennessee was a millionaire.
What went wrong?
According to Victor Haghani and James White, authors of The Missing Billionaires, the Vanderbilts could have remained one of the world’s wealthiest families if they had simply invested in a diversified portfolio of US stocks, spent 2% annually, and paid their taxes. Instead, a mix of lavish spending, poor investment choices, and a lack of stewardship led to the fortune’s rapid decline.
The Pattern Repeats: Australia’s Lost Fortunes
The loss of generational wealth isn’t unique to America. In Australia, it’s difficult to find modern members of the country’s richest families from 100 years ago. Names like Hordern, Fairfax, and Clarke once dominated the economic landscape. Yet today, their descendants are notably absent from the country’s rich lists.
William Rubenstein’s The All-Time Australian 200 Rich List calculated historical wealth as a percentage of GDP. He found that ex-convict Samuel Terry—dubbed the “Botany Bay Rothschild”—died with wealth equivalent to $86 billion in today’s terms. By contrast, Australia’s richest person in 2024, Gina Rinehart, is worth around $41 billion. Yet no trace of Terry’s fortune remains.
Why Wealth Disappears
So why do so many fortunes vanish? Haghani and White, drawing from their own experiences (including Haghani’s role at the failed hedge fund LTCM), believe the issue isn’t poor stock selection—it’s poor sizing decisions. That is, investors often take too much risk with too few assets, or spend at levels unsustainable for their portfolios.
They cite mathematical models like the Kelly Criterion and Merton share as tools to calculate optimal risk allocation. But while these are valuable in theory, they’re difficult for most families—or even advisors—to apply practically.
Common Mistakes Families Make
Beyond academic models, the real-world causes of wealth destruction are easier to identify:
- Concentrated investments with no diversification
- Investing in businesses or assets not properly understood
- Delegating financial control to untrustworthy individuals
- Expecting unrealistic returns
- Spending more than the portfolio can sustainably support
- Costly divorces or legal battles
- A lack of financial education for heirs
A Simple Formula for Preserving Wealth
The good news? The core principles of preserving wealth are simple—and timeless:
- Diversify your investments. Avoid concentration in one asset, business, or sector. A globally diversified portfolio provides resilience through economic cycles.
- Spend less than your portfolio earns. Aim for a sustainable withdrawal rate—typically 2% to 4%—to give wealth the best chance of lasting across generations.
- Educate the next generation. Financial literacy, a grounded sense of money’s value, and clear family communication matter more than any trust structure or asset mix.
The Financial Planner’s Role
As planners, we have a unique opportunity—and responsibility—to help families avoid becoming part of this recurring story. That means guiding not just investment choices, but behaviours and values. Encourage clients to document their wealth plan, involve heirs early, and prioritise sustainable strategies over short-term wins.
After all, wealth isn’t just about money. It’s about the impact it can have over time—if managed with care.
Want to ensure your clients’ legacy lives on? Let’s talk about multi-generational planning strategies that work.
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