Investing across generations

A CLIENT recently asked us an interesting question about long-term investing: If one wishes to pass on an inheritance to the next generation, should it be fully invested in equities alone?

At face value, there is a temptation to say yes. Equities, as is often repeated, have historically outperformed other asset classes "in the long term" and, so the argument goes, the inevitable volatility along the way should not matter over such a long time horizon.

However, as we argue below, there are a few things that could go wrong with such an approach. While the appropriate allocation will always differ from one situation to another, in most cases, a somewhat more diversified allocation could end up being a more prudent approach.