The BeeWyzer Robustness Score Tool – THE ROBUSTNESS OF YOUR WEALTH
Everybody wants his wealth to be organized in a sustainable way. And when I use the term sustainable, I mean two things: Investments obviously should contribute to making this world a better place and investments should be structured as to withstand external shocks.
Diversification is usually the name of the game here and it is not a bad thing at all to diversify and thus de-risk your wealth. But it does not get you to the robustness you aim at – here are the reasons:
- As learned during the financial crisis, in a general market shock even historically negative correlations tend to regress to positive mean or average out – driven by liquidity shortages. The most diversified portfolio of wealth might turn out to be undiversified with all asset classes behaving almost the same way, i. e. downwards.
So a diversification that works even in times of difficult market conditions has to go far beyond traditional asset classes and tap assets, investors seldom think about, such as farming land, diamonds or food and drugs people will always have to buy. On top of that a higher quota of liquidity is needed than investment professionals usually see as efficient. Because you will not be able to create it, when you need it.
- External shocks are often ‘black swan’ events. You do not know, what is coming and you do not know, when it is coming. And nobody can run a diversified investment mix based on researching historic financial data, that tackles an external shock not known at all.
A diversification that possibly works here has to cover the recommendations from the first point and add the topic of resources: besides your financial resources, the liquidity and the broader diversification, you have to make sure to have access to all physical and intellectual resources needed in times of external shocks. This way you will be able to move your assets, to unwind old inadequate structures or businesses and start new ones, to win suitable staff for it, to secure material and physical resources or the like.
- Most people think only about their business assets and their private assets, in effect limiting their diversification potential in the sense of everything described above.
But as personal financial planning is about your life, it should go further than that. We think that your individual holistic wealth balance sheet should consider the following 5 Dimensions of Wealth: the Company Value and Private Wealth, but also Human Capital, Social Capital and Family Value , in order to make your wealth more robust.
That is why the BeeWyzer Method works with a broader holistic balance sheet approach and has developed intuitive ways of quantifying the additional 3 pillars (Human, Social and Family) on top of Business Value and Private Wealth. Based on this system we have developed an easy-to-understand robustness indicator for wealth. After understanding the approach and summing up your figures, you have the possibility to use the robustness score tool, which gives you a fair indication of how robust and distributed your holistic wealth portfolio really is. The higher the score, the better equipped you are for future shocks and crises. And the more likely you are to leave something more behind for your children.
You can download a paper for free on www.beewyzer.com explaining how the BeeWyzer Robustness Score Tool works and showing you how to calculate your individual score.