From Cornelius Vanderbilt to the forgotten names on Australia's early rich lists, history is full of cautionary tales: vast fortunes built in one generation, then squandered in the next. Why is this such a common pattern? And more importantly, what can today's families do to avoid the same fate?
The Vanderbilt lesson: from richest to "not a single millionaire"
In 1877, Cornelius Vanderbilt — then the wealthiest man in the world — left an inheritance of over US$100 million to his son, Billy. Within six years, Billy had doubled the fortune through astute business decisions. Yet by 1973, not one of the 120 Vanderbilt descendants gathered at their namesake university in Tennessee was a millionaire.
What went wrong?
According to Victor Haghani and James White, authors of The Missing Billionaires, "the Vanderbilts could have remained one of the world's wealthiest families if they had simply invested in a diversified portfolio of US stocks, spent 2% annually, and paid their taxes." Instead, a mix of lavish spending, poor investment choices, and a lack of stewardship led to the fortune's rapid decline.
The pattern repeats: Australia's lost fortunes
The loss of generational wealth is not unique to America. In Australia, it is difficult to find modern members of the country's richest families from 100 years ago. Names like Hordern, Fairfax, and Clarke once dominated the economic landscape. Yet today, their descendants are notably absent from the country's rich lists.
William Rubenstein's The All-Time Australian 200 Rich List calculated historical wealth as a percentage of GDP. He found that ex-convict Samuel Terry — dubbed the "Botany Bay Rothschild" — died with wealth equivalent to $86 billion in today's terms. By contrast, Australia's richest person in 2024, Gina Rinehart, is worth around $41 billion. Yet no trace of Terry's fortune remains.
Why wealth disappears
Haghani and White, drawing from their own experiences (including Haghani's role at the failed hedge fund LTCM), believe the issue is not poor stock selection — it is poor sizing decisions. Investors often take too much risk with too few assets, or spend at levels unsustainable for their portfolios.
The real-world causes of wealth destruction are easier to identify:
- Concentrated investments with no diversification
- Investing in businesses or assets not properly understood
- Delegating financial control to untrustworthy individuals
- Expecting unrealistic returns
- Spending more than the portfolio can sustainably support
- Costly divorces or legal disputes
- A lack of financial education for heirs
The core principles for preserving wealth
The principles are straightforward and they have not changed:
- Diversify. Avoid concentration in one asset, business, or sector. A globally diversified portfolio provides resilience through economic cycles.
- Spend less than the portfolio earns. A sustainable withdrawal rate — typically 2% to 4% — gives wealth the best chance of lasting across generations.
- Educate the next generation. Financial literacy, a grounded sense of money's value, and clear family communication matter more than any trust structure or asset mix.
The adviser's role
A financial adviser working with families across generations has a responsibility that goes beyond investment selection. Guiding not just investment choices, but behaviours and values — involving heirs early in conversations about wealth, documenting the wealth plan, and prioritising sustainable strategies over short-term performance — is where the real long-term value lies.
Wealth is not simply a balance sheet. It is the impact a family can have over time, if managed with consistent care and clear-eyed realism about what it takes to preserve it.