You love your family. You want what’s best for them—and, let’s be honest, for yourself, too—when it comes to finances and building wealth. Investing together sounds like a great way to help your family level up together… but you’re left with a key question: How can you invest as a family… without ruining your relationships?
Many say that family and money shouldn’t mix. Still, historically the most financially secure families in the United States (families with names like S.C. Johnson and Koch) are families who invest together. So, what’s the truth? How can a family invest together without sending the mashed potatoes flying at Thanksgiving dinner?
This post provides seven steps to follow when considering how to invest as a family. After reading, you’ll have all the information you need to start your wealth-building journey together.
How To Invest as a Family: Benefits of Group Investing
Before we can show you how to invest with family without causing drama, we need to answer some foundational questions. Firstly: What does ‘group investing’ really mean?
Families or friends can engage in group investing by coming together to pool capital and purchase an asset together. When we think of investment groups, we often think of elite clubs only available to the incredibly wealthy. But that’s not true! As long as you have a group of like-minded people interested in investing together, you can enjoy the benefits of group investing.
This point brings us to our second key question: What are the benefits of group investing?
Group investing is advantageous for several reasons. Firstly, when you pool capital with family members, you have the budget to access more high-value assets than you might be able to access going it alone.
You can also leverage your entire family unit's experience and investing know-how. You can learn from older generations and teach the younger generations the ropes. Additionally, your family can tackle a new investment class together, learning and growing your skills as a family unit.
Investing with family is also particularly beneficial because you can leverage the benefits of group investing and do so with people you trust. Partnering with family means you can build wealth with the people you’re closest to.
Building wealth as a family also enables you to build generational wealth by investing in assets you can pass down through the generations and teaching younger family members the skills they need to build wealth in the future.
The last benefit of investing with family? It’s fun! Investing together can bring your family closer and strengthen your relationships when you do things right. Let’s look at the process you can follow to achieve this.
1. Understand the Challenges
We just spent 460 words talking about all the great things that can happen when you invest with family. However, it would be dishonest to neglect the challenges that can arise. That’s why the first step is understanding the common challenges you may face.
Some of the potential challenges of investing with family include:
- Varying goals: This first challenge is shared by all investing groups. Whenever you bring a group of people together, you’ll need to grapple with different opinions and different goals.
- Different risk tolerance: When you invest as a family, you may find that different family members have different risk tolerance levels. This challenge is particularly relevant if you have family members from different generations involved in the opportunity. Younger generations may be inclined to make high-risk, high-reward investments, while the 50+ club might prefer safe, stable investment vehicles.
- Changes to family structure: Families are not static structures. When members get married or divorced or pass away, you may need to adjust the structure of your investment group.
- Emotional challenges: When you’re making decisions with loved ones, it’s easy to let your emotions take the wheel. This challenge applies to business decisions for your investment group, too.
Though these challenges may seem intimidating, they are nowhere near impossible. With the proper preparation, you can easily overcome these challenges and make your family investment group journey smooth sailing.
2. Talk About Goals
Armed with a clear understanding of the challenges you may come across, your next step to investing successfully as a family is to take the time to talk about goals. Start these conversations early and have them often.
While you’re gathering family members for your investment group, discuss goals and expectations. Ensure you consider both long and short-term goals. Do you want to invest together in multiple deals? Or did you want to purchase one vacation property together and call it a day?
Use these conversations to select the best family members to get into business with. After all, if your goals aren’t aligned from the start, investing together will be unnecessarily challenging.
3. Get Members On Board
Once you’ve found family members whose investing goals align with your own, your next step is to get them excited about the opportunity of group investing!
This step is an easy one to underestimate or skip altogether. However, we caution you not to do so. This is more than just a pep rally—this step is about ensuring everyone in your group has the right mindset to succeed together. If your group isn’t in the right mindset, you’ll find it challenging to corral your group into successful investments.
However, once you get members on board, you can accomplish anything together!
4. Remember: It’s a Business
Speaking of mindset, it’s time to talk about the fourth step in your journey to investing with family: Understanding the importance of treating your investment group like a business.
When you’re investing with family, it can be tempting to leave things up to a handshake agreement. However, that way lies disaster. Instead, you’ll want to set up formalized processes and procedures to ensure your family investment group runs smoothly.
Some of the formalized processes you’ll want to have in place include:
- Filing an LLC: Filing an LLC will enable you to open a business bank account to use to pool funds. Your LLC will also help keep things equitable among all group members and will allow you to protect your personal assets from the consequences of any investment challenges.
- Creating an Operating Agreement: To run your group smoothly, you must have a formal Operating Agreement. Your Operating Agreement will dictate the rules and processes that govern your group. Deciding these items upfront will save you headaches down the road.
- Establishing Voting Procedures: Decision-making is a core process for any investment group. You’ll need to set up formal voting procedures to determine how your group will come to a consensus on important decisions like buying or selling an asset.
This part of the process may seem tedious but remember: This is more than paperwork; it’s protection for all group members—and your relationships.
5. Trust But Verify
You probably trust your family: Normally, that’s a good thing! However, you must be careful not to trust them blindly regarding investment opportunities.
Every member of your family group needs to ensure they are doing their due diligence regarding each opportunity presented to the group. For example, you may trust your father with your life. However, that doesn’t mean you should pull out your checkbook just because he says an investment is a “sure thing.”
Aside from possibly losing the entire group’s money, trusting your family members blindly regarding investment opportunities can create resentment within your family if the opportunity doesn’t pan out as expected.
One of the major advantages of group investing is that five brains are better than one. You can collectively make better decisions if each group member does their own due diligence and aligns on the right decision.
6. Communicate, Communicate, Communicate!
Step six of the path to investing as a family is ongoing. You should follow this step's advice at every stage of your investment journey. It’s vital to ensure your group is aligned early and often throughout the investment process.
Another important note is that when we say communicate, we mean to communicate with all group members. That means no sidebars. Having side conversations with individuals in the group via text or email instead of discussing decisions with the whole group can lead to some members feeling uninvolved and left out of meaningful conversations.
Communicating with your investment group can be challenging when you’re using a franken-system of various communication tools. You're asking for disaster if you’re trying to manage your investment group over Slack, text, email, in-person conversations, and phone calls.
Instead, we recommend using a single investment platform to keep all documents, decisions, and communications in one centrally accessible spot. Tribevest’s alignment tool can help you in this regard. Check out our features and pricing to see what our tool can offer your family investment group.
7. Have an Exit Strategy
Our last tip for how to invest as a family is to engage in succession planning. This step takes a few forms.
Firstly, ensure you have a plan for managing what happens if a member of your investment group passes away. It’s never a pleasant thought, but when investing with family members across generations, you need to prepare for it.
Additionally, you may have family members who simply choose to exit the investment opportunity. If this happens, don’t keep them trapped! Make plans upfront for how a member can sell their stake and leave the opportunity if it’s no longer aligned with their goals.
On the flip side, after you’ve invested successfully with a small group of family members, you may find that new members want to join in the fun. If they’re a good fit for the opportunity, don’t make them miss out! Set up processes early on for what to do if someone wants to join an already underway opportunity.
How To Invest with Family (and Have Fun Doing It)
Investing with family can feel intimidating, but if you follow the advice in this post, you should be able to move forward with your investment group confidently. When you do things right, investing with family is incredibly rewarding: Not just financially but relationally as well!
Learning about new investments and growing together in terms of wealth and knowledge can be fun. If you want to build generational wealth, access that dream family beach house, or leverage your family members’ knowledge to invest in valuable collectibles, investing as a family is something you should explore!
Remember: Without aligning and getting your ducks in a row, however, investing as a family can be stressful.
Use Tribevest’s alignment and investment platform to ensure your family can invest together… without causing fights at the dinner table. Get started for free today to see how Tribevesting can unlock your family’s investing potential!