How to Secure Wealth for Generations: Western Inspiration for Czech Entrepreneurs

Entrepreneurs in Western Europe and the USA place great emphasis on long-term wealth management planning with the goal of ensuring sustainable growth over many generations. They think in an infinite time horizon, which allows them to withstand short-term economic fluctuations and avoid hasty changes in asset structure. At the same time, they consider the global context and focus on portfolio diversification in terms of currencies, geographic regions, asset types, and industries. They thoroughly analyze how different components of their portfolio behave during periods of economic growth, recession, or crisis, in order to minimize risks and ensure stability.

The main goal is to preserve and protect family wealth from unnecessary risks, gradually expand it, and pass it on to future generations.

Each portfolio component has a clearly defined role – including assets that benefit from economic growth, as well as those that retain their value during recessions or react to varying levels of inflation. This approach optimizes returns and improves resilience to uncertainty.

Czech entrepreneurs and investors, however, often think too narrowly, focusing heavily on the Czech Republic and the Central European region. They allocate a large share of their wealth locally, often by owning regional businesses or investment properties. This concentration creates high dependency on regional economic and political conditions. In the event of unfavorable changes, such as a recession, the consequences for such geographically limited portfolios can be severe. Diversification into other global markets is therefore key to reducing risk and ensuring long-term asset stability.

Proper Asset Allocation

When building an investment portfolio, we approach investments as long-term investors seeking not only returns but also stability. The key strategy is global diversification, meaning allocation across various regions, company sizes, and currencies. The portfolio is designed with a long-term, ideally infinite, investment horizon and is divided into three main components: one-third of wealth is allocated to business shares, another third to real estate, and the last third to financial assets. This allocation works universally and ensures portfolio balance – and therefore financial independence!

In real estate, it is important to invest in properties of different sizes and spread risk across multiple regions. In financial assets, global diversification is essential – both geographically and in terms of currency – covering various sectors and company sizes. This strategy minimizes risks while optimizing returns.

The long-term goal is to create a family investment portfolio.

This portfolio will serve multiple generations and generate sufficient dividends to cover all living expenses and the regular running costs of the family. The portfolio should also include a growth component to ensure gradual appreciation. Entrepreneurs should consider possible economic scenarios, including situations where the company may not perform well economically and profits may be low or zero. The same caution applies to real estate – one must be prepared for a potential drop in property value or lower rental yields. When creating an investment portfolio, it is essential to take into account all economic aspects and be prepared for various scenarios to ensure long-term asset appreciation and stable income.

Why the Infinite Horizon?

The typical Czech dollar millionaire approaches wealth management less systematically than his Western counterpart. To successfully manage wealth in the long term, it is crucial to adopt the role of an asset steward. Part of this role involves being willing to bring in experts who can offer valuable perspective and experience. The stewardship approach is a fundamental way to ensure the sustainability and growth of accumulated wealth.

In the Czech Republic, however, this approach is not very common, for several reasons. One is the lack of a deeper, intergenerational view of wealth, which has been neglected in our society for decades. Another is the thought, “What if I don’t live to see it?”

Embracing the principle of the “infinite horizon” – managing wealth with future generations in mind – opens up an entirely new way of thinking about wealth.

Short-term thinking, such as planning for only 5 years based on the entrepreneur’s age, often leads to conservative investing that neither protects wealth from inflation nor ensures its growth. After five years, such an investment plan is simply extended by another five years – because, “what if” – and so on, indefinitely.

How to Solve This Problem

The key is an approach that combines strategic investing with planning for a regular annuity. Invest your portfolio according to a defined investment profile and set an annual withdrawal amount for yourself, your family, and future generations. Increase it each year by inflation, thus creating a foundation for long-term financial growth. Ensure that annual withdrawals from the portfolio do not exceed dividend yields – that is, a maximum of 3.5% per year. A system set up this way will create a kind of “perpetual motion machine” – you will be able to draw cash without reducing the portfolio’s value, while also ensuring its gradual growth. This approach provides financial stability not only for you but also for future generations.