Resiliency in an Uncertain World

Posted in: Financial Planning, Risk

Geopolitical risk is not something that anyone has really had to absorb in the last 40 years. The last time external factors influenced the supply chain in a meaningful way was the mid-1970s. At that point in time, the production of energy was constrained and the secondary effects were felt around the world. We had a small taste of supply chain disruption during COVID, and the supply chain weakness was exposed, but commerce also stopped. Demand destruction and massive government stimulus insulated us from the problem. It was not a true test of independence. 

The conflict in the Middle East has exposed weaknesses in energy infrastructure worldwide. That knowledge is now in the system, and financial strength of countries is being tested. We expect disruption to impact developing nations but Forbes is predicting that California (the 5th largest economy in the world) has about 10 days of gasoline left. Who knows if that is true but if it is, the impact would be meaningful economically. (link). California is getting ready to test the resiliency of their energy supply chain.

Resiliency

In personal financial planning, resilience is tested in times of uncertainty. It is not about predicting the next crisis. It is about continuing life when uncertainty hits. Resilient wealth has minimal friction when the need to convert paper wealth to cash to bridge the gap of uncertainty. It is the true test of strength when you are indifferent to the macro. 

We test your financial resilience in two ways during our annual review – liquidity ratio and organic cash flow. 

Liquidity

Liquidity is defined simply by a yes to the following question: “Can I convert this asset to cash in 24 hours?” Stocks, most bonds, money market, etc., all meet the test. Real estate, IRAs and collectibles can be converted to cash, but it takes time and normally depends on a willing buyer. In a crisis of confidence, the conversion to cash is not without friction and illiquid assets that are forced to sell can experience price destruction. We saw this in the 2007-9 financial crisis when some home values dropped as much as 90%. It can also impact the stock market if a portfolio does not have a strategic reserve. Apple is a widely held stock, very liquid and buyers are plenty. But if the market draws down 20%, even Apple’s stock price will be impacted. If the decline coincides with the need for cash, one is forced to sell at a lower price. Even liquid assets have to go through the conversion process – wealth must be sold to create money. The goal is to have sufficient assets that are not price sensitive in an irrational market to meet the needs of the family. The next test is organic cash flow creation.

Organic Cash Flow

Organic Cash flow is our favorite way to create a resilient portfolio in all markets. The focus on using interest and dividends to re-create the paycheck is not new. It has been tested since the beginning of time. Regular dividends and interest create a built-in cash-flow stream that can fund living expenses without selling core positions when markets are having a moment. The production of monthly, quarterly or annual cash flow should continue with very little variance to meet the needs of the family during the worst of times. It is the ultimate test of resilience. 

It is also important to think about the source of this income. Dividends and interest arise from an operating business and/or government, and the outcome is tied directly to their operations or underlying obligations. The payment is the result of a business outcome, not a stock market outcome.

The more of your Lifestyle Cash Flow that can be met by business‑driven cash flows (interest, coupons, dividends, rents), the less you rely on high‑friction, market‑timed conversions of paper wealth into cash during stress. That essentially turns part of the portfolio into a self-replenishing liquidity source, so “wealth to money” conversion is continuous and mechanical rather than episodic and price-sensitive.

But there is an added feature of a dividend strategy. It is also a value strategy because it systematically tilts you toward companies trading at lower multiples, often in out‑of‑favor sectors where prices have already declined. In practice, dividends tend to be paid by firms after a period of underperformance that leaves them looking cheap on traditional value metrics. As a result, selecting stocks based on dividend characteristics typically tilts your portfolio toward companies and sectors that the market has discounted, which can provide additional upside.

Conclusion

The last few years have reminded us that the world can change quickly and in ways that no one can predict. Geopolitical conflict, fragile supply chains, and stressed energy infrastructure all underscore a simple truth: real strength comes from the ability to keep living your life calmly when uncertainty hits, and headlines are unsettling.

That is why we focus so intentionally on resilience. Liquidity and organic cash flow are the bridge between “wealth” and “money”. When you have ample liquid reserves and a stream of interest and dividends, the conversion from wealth to spendable cash becomes continuous and mechanical, not episodic and dependent on selling assets in bad markets.

Over the last 24 months, you have seen the results in your portfolios. Income has paid the bills, funded withdrawals, and allowed us to be patient minority owners of businesses. Our goal is to build a financial structure where your family’s needs are met by resilient cash flow, not by hoping markets go up at exactly the right time.

In a world that feels less predictable, resilience is a necessity. Our job is to keep strengthening that resilience.