Wealth of Wisdom

CHAPTER 29Keeping Goals in the Spotlight with Capital Sufficiency Analysis

Joe Calabrese

In managing and preserving significant wealth, investors and their advisors typically make use of every financial tool available to them that is appropriate for their situations. However, one important tool is often overlooked: capital sufficiency analysis. This can play an important role in a goals-based investment strategy for an ultra-wealthy family.

Why Capital Sufficiency Analysis Is Critical

Capital sufficiency analysis is the process of determining whether a family's existing and estimated future financial resources will enable them to achieve their financial goals. For most investors, it helps them determine if they will be able to meet their retirement goals. In contrast, ultra-high-net-worth investors don't generally have the same type of concern. If a family has $25 million or more, for example, it's generally not worried about the risk of running out of capital. As a result, they may dismiss the importance of undertaking a capital sufficiency analysis.

That's ironic because ultra-wealthy families stand to gain the most from this process. While they may not be concerned about being able to retire comfortably, they typically place a high priority on goals involving charitable giving, business continuity and succession, and wealth transfer to subsequent generations. Without careful capital sufficiency planning, they may fall short of achieving all their financial goals.

Markowitz ...