"Knowledge is a process of piling up facts; wisdom lies in their simplification.” — Martin H. Fischer, physician and writer

Functional dashboards are essential in your wealth management strategy. You have to understand what is occurring in real time. There are too many crises that could have been averted.

Take Three Mile Island in Pennsylvania, the site of a partial nuclear meltdown in the late 1970s. A group of engineers were sitting in a control room in front of one of the most sophisticated dashboards in the world, but it was so big and complex that they overlooked the alerts indicating there was a problem.

Liken that control panel to the 200-page financial plans you’ve had dumped in your lap. There’s a better approach.

Four Frameworks for a Unique Wealth Management Strategy

A wealth management strategy is not about better financial plans; it’s having more accessible financial frameworks with better key performance indicators (KPIs) and shorter feedback loops.

Mine involves four parts. You’ll need one or all of the following:

1. A one-page plan.

This one-page plan focuses on your ultimate purpose. Maybe that’s becoming anti-fragile. Maybe it’s prioritizing and affording experiences over things. Maybe it’s transferring wealth to the next generation. Your one-page plan articulates your purpose; the business metrics we’ll use to measure success; and the top-level goals we’ll work on to get there over the next three to five years, next year, and the next 90 days.

2. A risk allocation framework.

Look at risk allocation rather than asset allocation. That falls into three buckets.

    1. Preservation. This is your safety or low-risk assets: your cash, treasuries, and money market accounts that will allow you to preserve your lifestyle when something goes wrong.
    2. Maintenance. Typically that’s stocks and bonds. You won’t necessarily get rich from these investments, but they’ll allow you to maintain your lifestyle and build wealth.
    3. Aspiration. Here, you’re taking bigger risks for bigger returns. Maybe that means putting $250,000 into a startup with the expectation of a 10x return in a few years. Figure out where your assets fall and whether that makes sense based on your financial goals.

3. A goals-based-plan framework.

This report is a tool for revealing key results. It’s harvested for your unique metrics — safe withdrawal rate, stress tests, average annual growth rate, etc. These are now the KPIs in your one-page plan. Track progress to these goals on a regular basis.

4. A cash flow framework.

Consider distinguishing:

    1. Your cash assets, which comprise your liquidity, from your investments (stocks, bonds, real estate, and venture capital), which provide ROI in an intermediate to long-term time frame.
    2. Liquidity-focused risk profiles from your investment risk profile.

In the depths of the Great Recession, of those investors who did get into trouble, the great majority did not misdiagnose investment risk; they ran out of liquidity and then needed to sell stock, real estate, etc. at a fraction of its value. But what if they had ample liquidity and their investments were allowed time to recover? Then it was just volatility rather than lost money or even bankruptcy.

Treat your wealth management strategy like a vital corporate initiative: Where do you need to end up? What are the steps? What’s the timeline? How will you measure success? Identify them, understand them, and optimize your execution as you measure monthly or even daily.

It sounds like Business 101, but no one’s doing this with their wealth.

Click here to set up a meeting with me

Any opinions are those of John Pulliam and not necessarily those of Raymond James Financial Services or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Diversification and asset allocation do not ensure a profit nor protect against a loss. Investing involves risk, and you may incur a profit or loss regardless of the strategy selected.

Share this

Recommended Posts