Financial planning, Wealth transfer, Women and investing Women and investing: Planning for your legacy

Legacy goals

Women tend to perceive and value wealth mainly as a source of security and tend to focus on being financially secure and able to afford a certain lifestyle for themselves and their loved ones over the long term. Additionally, for women, legacy often means more than passing wealth down to the next generation; it also means being capable of positively impacting the lives of others. There is a tendency for women to invest with purpose, where purpose represents both their goals as well as their values and impact on society. For example, they may want to help finance the next generation’s business ventures, or provide for a first family home. They may also have a passion for a certain cause and would like to use their wealth to make a difference but may not know whether such goals conflict with their objective of passing on wealth to the next generation. A personalized plan would help better understand and meet these objectives.

When thinking of legacy, a thoughtful conversation can help investors to discover relevant goals:

• How do I want future generations to benefit from the family’s wealth?
• What are my philanthropic goals, if any?
• Would I want to invest in ways that positively impact the world?
• Is there a certain minimum amount that I want to pass on to my heirs? Is there a maximum?
• Do I want to help my heirs financially while I am still alive?
• Should I separate my investments from our family business assets? Or should our investments complement these assets?

There are generational differences in terms of how women define what they want their legacy to be. In a recent survey by RBC, younger women more so than older women have a greater belief that they have an obligation to transfer wealth to the next generation (65% vs. 55%) as well as wanting to have a broader impact on society (65% vs. 52%) and tackling societal issues specifically through investing (76% vs. 59%).

According to data from our 2022 UBS Investor Watch survey, 56% of women (vs. 47% of men) do not know how much wealth they can pass on to the next generation, highlighting the importance of planning. Given gender differences in i) how legacy is defined, ii) investment preferences and the approach to investing (as described in our report “Reimagining Wealth Advice”) iii) as well as differences in longevity, attention needs to be given on how women can best allocate resources to achieve these multigenerational objectives. This includes looking at how best to invest in order to grow and protect wealth, how best to invest to align to your values, as well as considerations regarding establishing a plan where women can transfer their wealth to their heirs, or others, in line with their goals.

Investing for your legacy goals

Preserving, or better growing wealth through investing is necessary, otherwise there will be wealth erosion through inflation, taxation, and consumption over the generations. It’s important to distinguish between real and nominal returns. Inflation is a measure of the changing costs of goods and services across the economy. A nominal return of 5% will reduce to a real return of 2% if there is 3% inflation. So, if an investor’s main goal is to preserve the capital’s real purchasing power, only 2% is available for spending. Over the years and across generations, that spending power can diminish dramatically. Inflation rates can be a helpful starting point for forecasting future spending, but it is important to consider that each investor’s personal spending composition will be different to the mix of goods and services used by an inflation index. Furthermore, as a family grows, the real return on its investments will need to meet the needs of more people. Future generations may also expect the same lifestyle as previous generations. However, they may not be able to depend on the same resources—unless the family can increase the real return on its assets.

Therefore, there is a need to invest in assets that generate positive and growing returns. The aim of the Legacy strategy is to pass on assets that go beyond their lifetime needs for the next generation, or to use them for other favored causes. A Legacy strategy therefore focuses on maximizing the value of transfers to future generations and to make a positive impact on society.

Conclusion

For women investors, establishing goals for the Legacy strategy is important. As women take control of a larger and growing share of wealth, they will want and need to take control of their Legacy strategy portfolios both in terms of investing them to protect and grow their wealth over generations as well as taking steps for a smooth transfer to the next generation. Women value expert advice more highly than men, both in terms of investment advice, but also in terms of facilitating discussions and executing succession plans. Women need to plan, invest smartly and orchestrate the transfer of their wealth. Through their investments, charitable donations, and financially educating their heirs, women have the potential to make a significant impact on both society and future generations.

Main contributor: Marianna Mamou

Click here to learn about planning for your legacy and to download the full report “Women and investing: Planning for your legacy” 2 March 2023.

This content is a product of the UBS Chief Investment Office.

Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.