The last generational wealth transfer

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Could we be staring down the barrel of the last great wealth transfer? The wealth plans we make today can affect the generations that follow.

Every couple of years a new 'buzz' expression enters our conversations.

In the late 1990s Y2K was all the rage. In the noughties we were told to chillax.

sponsored intergenerational wealth transfer

In 2024, the great intergenerational wealth transfer is the talk of the town.

But what is it all about, and how does it impact investors?

Generational investing - there's plenty to go around. Or is there?

The great wealth transfer is approaching, and it is not a purely Australian phenomenon.

It's all about the $US68 trillion (A$102 trillion) in global assets that is expected to shift from baby boomers (those born between 1946 and 1964) to their heirs in the next few decades.

Not surprisingly, this is expected to be the largest intergenerational wealth transfer in history.

Australians will be part of it.

A research paper released by the Productivity Commission in late 2021 forecasts that about $3.5 trillion in assets will likely change hands in Australia by 2050.

However, one factor could act as a glitch in all these predictions.

The costs of living longer could drain estates

Australia has one of the highest life expectancies in the world (83.2 years in 2021).

We rank fifth among 38 other Organisation for Economic Co-operation and Development (OECD) countries for life expectancy.

That's great news for Australians.

The downside is that funding a (hopefully) long and rewarding retirement costs money, and the longer we live the more expensive it becomes.

Longevity can raise questions about whether we will be able to transfer as much wealth to the next generation as we would like to.

In short, are the kids alright?

The likely answer is yes.

However, it will take a combination of careful planning and smart asset selection.

For investors, this can mean thinking outside the square.

Asset selection is critical

With up to $3.5 trillion in assets in play, it's forecast that millennials will become the richest generation in history.

Making this expectation a reality calls for getting wealth planning right.

Building well-constructed portfolios that include allocations to alternative investments that are not correlated to equity markets, can make a big difference to investment outcomes.

In fact, without careful planning for our financial future, we could be looking at the last great wealth transfer.

That's because the costs associated with greater life expectancy could easily drain investment coffers, leaving minimal transfers available to the next generation.

What's the solution?

Diversification can be a game changer for retirement portfolios.

By this, I mean diversification into asset classes that you may not have considered, such as private credit.

For context, private credit refers to lending by non-bank institutions.

Think of all the benefits the big banks gain from lending - regular returns, high yields, a steady cash flow.

It's no surprise that these upsides have made our major banks some of the wealthiest companies in Australia.

By investing in a private credit fund, investors can tap into similar benefits.

There are other attractions too.

Private credit has very little correlation to equity markets (which can dish up extremes of highs and lows).

So, private credit investors enjoy a far smoother journey.

The lack of volatility also makes it easier to plan ahead, particularly when it comes to retirement incomes and passing an inheritance to the next generations.

Exciting new opportunities

For more than 70 years, La Trobe Financial has given Australian investors the chance to access local private credit markets through our popular Australian Real Estate Private Credit Fund.

But our 100,000-plus investors have asked for additional opportunities.

Now, we have delivered.

The La Trobe Financial team is excited about the launch of our La Trobe US Private Credit Fund.

It is giving Australian investors a rare opportunity to invest in US private credit - a market that far eclipses the Australian scene -and one that has generated an average total return of about 9.4%pa since 2005.

For Australian investors, including self-managed super funds, this is a compelling return.

That said, accessing US private credit calls for partnering with an experienced team.

La Trobe Financial has been guiding Australian investors through private credit markets since 1952.

Now we are ready to work with investors to access US private credit opportunities together with our product partners, Morgan Stanley.

It's a move that could help your personal intergenerational wealth transfer go from good to great, while still letting you live your retirement dream.

La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence No. 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321 and the La Trobe US Private Credit Fund ARSN 677 174 382. It is important that you consider the relevant Product Disclosure Statement (PDS) before deciding whether to invest or continue to invest in the fund. The PDSs and Target Market Determinations are available on our website. Total investors is calculated by adding all individual and joint investors (which includes some investors with a current zero balance in their account) to reasonable estimates of investors investing via platform, trusts or SMSFs. Financial product advice in this article is general only and does not consider your personal circumstances.  Past performance is not a reliable indicator of future performance.

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Chris Paton is chief investment officer at La Trobe Financial. He has more than 14 years' experience in banking, asset management and financial services and has held a number of senior roles since joining the business in 2017. Prior to joining La Trobe Financial, Chris worked in law specialising in the banking and finance sector. He holds Bachelors in Commerce (Distinction) and Law (Hons).