Outcome-based planning &
99.99% Accuracy

What if you could have 99.99 % confidence in your financial outcomes — not as a marketing claim but as a statement of fact?

Autopilot can land jets. Cars can drive themselves. Yet we still cannot say with confidence how much money someone will have in 30 years. The excuse that “it’s different” doesn’t hold: there are not more variables in household finance, there are fewer. Outcome-based planning is at once elegantly simple and mathematically rigorous.

Whatever your vantage point — individual, practitioner, or academic — what follows will challenge the way you manage money today and offer a new way to think about your financial trajectory.

Spiral Theory™ introduces a third dimension to wealth management — the quantity of money. Just as autopilot relies on a gyroscope to navigate in three dimensions, this third dimension makes predictable outcomes possible.

At a glance

Goal as the Fixed Point – Begin with a single, quantified outcome (e.g., $X per month after tax in perpetuity). The goal is the anchor; everything else moves around it.
Three-Dimensional Framework – Traditional planning locks in an allocation and projects forward. Outcome-based planning adds a third dimension—quantity of money—to stabilize the path like a gyroscope.
Risk Tolerance Comes Later – Risk preferences are not ignored, but they are integrated only after the foundational target is secured. Until then, allocation is driven by what is required to reach the goal, not by comfort scores.
Global Equity Target (GET) – Use a broad, market-cap-weighted global equity index as the implementable proxy for the tangency portfolio. Compute the minimum exposure required to reach the goal at the desired confidence.
Path Efficiency – Sequence matters. Build the GET first, diversify later. This improves time to goal by reducing drag from premature diversification, fees, and taxes.
Dynamic Allocation, Not Static Models – Instead of rebalancing back to a fixed percentage mix, rebalance back to the quantity of global equities required to hit the goal. Allocation changes as wealth and proximity change.
Liquidity Has Option Value – Treat housing and other illiquid assets as consumption preferences. Maintain enough liquid, risk-free assets to preserve rebalancing ability; extinguish that option only when it is no longer valuable.
Structural Debt as a Tool – Avoid debt with a cost above expected returns. Consider low-cost, positive-spread debt as a temporary accelerator until the base is built; then retire it quickly once the goal is secured.
Measure Drag in Years, Not Basis Points – Taxes, fees, premature diversification, and sequence errors translate into extra years of work. Minimising these frictions frees up “return” that can be converted into greater conservatism later.
From Hope to Design – Traditional planning hopes the fixed allocation works. Outcome-based planning designs a system that minimises the risk required to hit the goal and adapts dynamically as conditions change.

Outcome-based planning vs.

the traditional approach

Introduction

A prescriptive approach is the most valuable second opinion.

Medicine is prescriptive. If you have a heart condition, the physician recommends a pill, a stent, or surgery. Your pain tolerance is not the primary driver; the course of treatment is chosen to achieve the outcome.

Finance, by contrast, is usually treated as a “snowflake” problem. Advisors collect preferences—risk tolerance, savings and consumption habits, a handful of goals with different horizons—and then mix them with tens of thousands of investment choices. The combinations are effectively infinite, so every plan looks bespoke.

Yet the snowflakes sit on shared ice. Long-run equity returns are debated at the margin (9%, 10%, or 11% —not −15% or +50%). Risk must be approximated, but it is not unknowable. In practice, markets are “known in distribution over time”; timing is the unknown.

Traditional planning elevates preferences to first principles. The logic is familiar: if an investor takes too much risk, the next drawdown may force a panic sale that derails compounding; therefore risk tolerance and debt preferences (e.g., “I want the house paid off by retirement”) dominate the model. Sometimes that is fine—if you wish to drive from New York to California via Florida, that is your prerogative. But many people also ask for the fastest route.

Outcome-based planning is prescriptive in the useful sense. Given any assumptions, it designs the most efficient path—using both assets and liabilities—to reach a specified outcome with a specified confidence, while minimizing unnecessary constraints.

Most households define financial independence in narrow, outcome terms—say, $20,000 per month, after tax and inflation, for life, with very high confidence. Those are not “snowflakes”; they are tight numerical targets. Relative to autopilot landing a jet or a self-driving car navigating downtown Chicago, taxes, inflation, and longevity are not especially unruly variables.

Is it right for you? That depends on your goals and temperament. Is it worth understanding? Absolutely—because if your true objective is a defined cash flow, with high confidence, the most direct path is rarely the one produced by a snowflake.

Seven important choices

Your Wealth Levers™️

Before you choose an investment, you must choose a planning model. Long-term outcomes are shaped far less by forecasts or fund selection than by a handful of structural decisions. These are your Wealth Levers™ — the points where a single choice can alter your entire financial trajectory.

A lever is something you can move with intention to produce a large effect. In personal finance there are seven primary levers:

Your goal (what you’re actually trying to achieve)
Risk tolerance (how much uncertainty you’re willing to bear)
Asset allocation (how you divide between broad asset classes)
Fund selection (which vehicles you use to implement allocation)
Rebalancing (whether you hold fixed percentages or adjust dynamically)
Structural debt (long-term obligations like a mortgage)
Strategic debt (borrowing used deliberately to improve efficiency or reduce volatility drag)

Your perspective on each of these variables matters. Taken together, they define your planning system. Chosen with intention, they unlock clarity, control, and long-term efficiency. Left to default, they often undermine the very goals they’re meant to serve.

Two Systems, Two Sequences

Traditional (asset-based) planning starts with many goals, takes as much risk as you can tolerate, lets that risk drive your asset allocation (a 70/30 model, for example), rebalances to fixed percentages, pays off structural debt to feel secure, and avoids or ignores strategic debt. It locks in two fixed points — a portfolio allocation and a projected goal. If markets outperform you accumulate excess; if they underperform you fall short. Because the structure is rigid, outcomes are largely left to chance, not design
Outcome-Based Planning reverses the sequence. Your biggest goal — typically long-term financial independence — becomes the anchor. Smaller goals are secondary. You take only the risk required to meet the primary goal; asset allocation is derived from the goal rather than from your risk tolerance; you typically need only one or two funds; and you use low-cost debt and strategic debt deliberately to optimize your total economic value and reduce volatility drag.

Outcome-Based Planning functions like a gyroscope: the goal remains fixed, but the system moves around it. Allocation, funding decisions, and debt are flexible components designed to stabilize your trajectory.

Planning: Two very different approaches

The seven Wealth Levers: A comparison of traditional and outcome-based planning

Two different frameworks

Endowment versus Insurance Framework: Managing to a Known Liability

In institutional finance two dominant paradigms exist for managing assets relative to obligations. Endowments typically adopt an asset-based, percentage-spending rule. They aim to preserve real value while disbursing a fixed proportion—say, 4-5 percent—of portfolio market value each year. Because spending is defined as a fraction, the liability flexes as markets rise or fall. This approach works where flexibility and surplus exist: the institution can reduce or defer expenditures in downturns without catastrophic consequences.

Insurance companies take the opposite tack. They begin with fixed, inflation-indexed liabilities—annuity payments, death benefits, or claims obligations—and design portfolios around those non-negotiable outflows. The investment policy becomes an endogenous variable: asset allocation must adjust to maintain solvency and duration matching as the liability stream evolves. This is not about selling insurance products; it is about managing a portfolio to a known liability schedule.

Households face an analogous choice. Even ultra-high-net-worth families have a non-negotiable baseline of lifestyle spending—a “fixed real-dollar anchor”—alongside discretionary goals. One cannot simultaneously hold a fixed asset mix and a fixed spending target when assets fluctuate. You must choose which variable flexes. Either spending adjusts to markets (endowment model) or the portfolio adjusts to spending (insurance model). Fixed-dollar and percentage-based strategies are mutually exclusive: one adapts to markets, the other to time.

Done properly, managing to a fixed liability can be a gift. Under a static allocation (e.g., 70/30), an investor enters a crisis fully exposed and may be forced to cut spending or sell assets at a loss. By contrast, a goal-driven manager who de-risks after gains moves down the Capital Allocation Line before a downturn, then can re-risk—potentially to 100 percent equities—because the spending goal, not the model, drives the strategy. This is dynamic, goal-based rebalancing, a quiet but profound shift. It draws on lifecycle portfolio theory (Bodie, Merton, and Samuelson, 1992), which emphasizes human capital, dynamic consumption, and evolving optimal asset allocation over time.

Until your “cup” is full—the Global Equity Target—every dollar goes to building your base of globally diversified equities, with no selling or complexity. Once full, new savings and growth spill over into the risk-free asset (Treasuries or cash). This excess becomes dry powder. When markets decline, you rebalance not from stocks to bonds but from safety back to growth, steering toward your goal. You are not just investing; you are managing a balance-sheet policy.

The rational question for any investor is therefore not “what’s my optimal fixed mix?” but “which variable am I willing to let move—my spending or my allocation?” This distinction is foundational to building a sustainable plan.

Two different perspectives

Risk

The key difference between Traditional and Outcome-Based Planning starts with how they treat volatility.

Traditional planning is proactive to risk. It assumes something bad might happen, so the portfolio is designed to minimize discomfort and keep you “on course.” That sounds reassuring, but building permanent cushions to avoid every bump can be expensive and often slows long-term growth.

Outcome-Based Planning is reactive to risk. It assumes volatility will happen and builds a system that adjusts in response, with your goal as the fixed point. Instead of paying to suppress risk, it builds up resources to capitalize on it — using allocation, liquidity, and even strategic debt as stabilizing levers.

One model locks in a fixed allocation and hopes it works. The other keeps the goal fixed and adapts everything else around it. Both aim at the same destination, but they handle risk very differently along the way — and that difference drives the divergence in outcomes.

Risk: Two very different perspectives = different process

Most investors should have some exposure

to a low-cost global equity index fund

Your Global Equity Target

In portfolio theory there are two anchor assets for every investor: the risk-free asset and the tangency portfolio. The risk-free asset carries no volatility but, after inflation, no real return. The tangency portfolio is the market’s best trade-off of risk and expected return—the point where the capital allocation line touches the efficient frontier. Two points define a line; that line is the capital allocation line. Nothing rational sits above it, and much sits below it.

In theory and in practice, risk is a cost. If you could fund your lifetime with certainty, you would choose the risk-free asset and be done. The reason you do not is not love of risk; it is scarcity.

Above some threshold of wealth, preferences can dominate: with a surplus, one can afford to hold concentrated real estate, private companies, or art, or even borrow judiciously, because failure does not threaten the primary objective. Below that threshold, the problem is different: the task is to reach the objective with the least risk required.

Global Equity Target formalizes that task. It treats globally diversified equity as the working approximation of the tangency portfolio and FDIC-insured cash as the baseline for the risk-free rate. Because the long-run real return and volatility of broad global equities can be reasonably bounded, the minimum allocation needed to achieve a stated outcome at a stated confidence can be estimated. That minimum is the Global Equity Target. It is not a forecast of the next quarter; it is a structural calibration of how much exposure to global enterprise you need, given your goal, savings, horizon. Risk is anticipated, managed independently, and will be discussed later.

Why global equities? Because a market-cap-weighted basket of the world’s listed companies is the simplest implementable proxy for the tangency portfolio. It is diversified across countries, currencies, sectors, and firms; it avoids idiosyncratic (company-specific) risk; and it internalizes competitive disruption rather than betting against it. A global index fund delivers proportional claims on thousands of firms without the operational headaches of direct ownership. This is not the S&P 500. Home bias should be explicitly challenged in any academically grounded framework, because concentration in one country raises uncompensated risk without commensurate expected return.

It is useful to separate temporal from structural risk. Specific assets—your business, a single property, bitcoin, a venture stake—may outperform for long stretches, and they may not. Over short horizons anything can lead; over very long horizons the globally diversified equity basket reflects the compounding of human enterprise itself. Outcome-based planning respects that empirical asymmetry. It does not require you to abandon other holdings; it requires you to recognize their idiosyncratic and temporal risks and to size them around, not instead of, the target needed to secure your primary outcome.

Most households define independence in cash-flow terms—say, $20,000 per month, after tax and inflation, for life, with very high confidence. Because the expected real return and volatility of global equities can be bounded, time-to-target can be bounded as well for any savings rate. The planning rule that follows is simple: set the outcome, compute the Global Equity Target needed to fund it at the desired confidence, and then take only the risk required to reach it. As resources grow and the gap to target narrows, required risk falls. In traditional planning a “moderate” investor remains moderate regardless of progress. In outcome-based planning, “moderate” is whatever the math says is required today to hit the goal—ideally drifting toward zero as the target approaches. This is not a stylistic preference; it is the core structural choice that turns outcomes from hope into design.

This framework stands directly on the foundations of Modern Portfolio Theory. Markowitz formalised diversification; Tobin showed how every investor can combine a risk-free asset with a single efficient portfolio to trace the capital allocation line. Fama’s work on the market portfolio demonstrates that a broad basket of global equities is a reasonable, implementable approximation of the theoretical tangency portfolio. Merton extended these ideas to dynamic, continuous-time settings, showing how allocations should adjust as wealth and horizon evolve. Shiller’s research reinforces that risk can be estimated over very long (perpetual) horizons and adjusted at temporal horizons. Global Equity Target applies these insights to individuals: use the market portfolio as the implementable tangency portfolio, calculate the minimum exposure required to reach a stated goal at a stated confidence, and then adjust risk dynamically as circumstances change.

No home bias.

Execution matters

The biggest slip in executing Outcome-Based Planning is to change the index. U.S. investors often hear “global equities” and then buy only the S&P 500, believing they are following the strategy. They are not. Outcome-Based Planning can be adapted to many preferences, but that path is not this path.

Substituting a single-country index introduces policy, currency, and concentration risks that the framework is designed to neutralize — risks that are large but hard to quantify. The Global Equity Target works only if it is built on a true global, market-cap-weighted portfolio.

Home bias is comforting but costly over a lifetime
A core principle of outcome-based planning is that the Global Equity Target (GET) should be built using the broadest, most diversified market-cap-weighted portfolio available. In practice that means global equities, not just the S&P 500.

The problem of home bias
“Home bias” describes the universal tendency of investors to overweight the stock market of their own country. In the U.S. that typically means portfolios dominated by the S&P 500. This feels safe because the companies are familiar, reported in local media, and quoted in local currency. But economic history is cruel to concentrated bets on any one market—especially after prolonged periods of outperformance.

From 2009 to 2025 U.S. equities, as measured by the S&P 500, increased roughly tenfold. That performance has been stronger than most, if not all, other developed markets. Yet the same was once true of Japan in the 1980s, of the U.K. in the early 20th century, and of various emerging markets during booms. Subsequent decades delivered long stretches of underperformance relative to the global market.

Policy risk, sector risk, and concentration risk
Global diversification reduces risks that are invisible to investors in any single market:

Policy risk: Changes in taxation, regulation, currency, or monetary policy in one country can permanently alter expected returns.
Interest-rate and inflation risk: Home economies experience different cycles. A global portfolio balances them.
Sector and company concentration: Even the S&P 500, while broad, can become dominated by a handful of sectors or mega-cap names. A global portfolio dilutes those concentrations by weighting every listed company by its actual market capitalization.

A life-long or perpetual time frame
Outcome-based planning explicitly works on the time continuum of a lifetime (or longer). Over short intervals one market will always outperform others. Over decades or perpetuity, no single country or sector has a durable edge once risk-adjusted. A global market-cap-weighted index—like VT, VTWAX, VTWSX, ACWI, or ACIM—approximates the theoretical “tangency portfolio” described in Modern Portfolio Theory: the portfolio of all risky assets, weighted by their share of the global market.

Eugene Fama’s research shows that global equities are a reasonable implementable proxy for this tangency portfolio; Robert Shiller’s work reminds us that while risk can be estimated over perpetual horizons, valuations and volatility must be adjusted temporally. Together they point to a simple but underused conclusion: global is the neutral starting point.

The cost of getting it wrong
Academically, overweighting a single market is not a benign choice. It is an active bet that the home market will outperform the world, with all the policy and concentration risk that entails. For a U.S. investor, holding only the S&P 500 is no different than a Canadian investor holding only the TSX or a Japanese investor holding only the Nikkei. Over a lifetime or longer, the odds favor the world, not the home slice.

Putting it into practice
In outcome-based planning the GET is always computed in real dollars (or the investor’s unit of account) but implemented using a global equity index fund. This avoids home bias by default and reduces the hidden risks that undermine confidence. The S&P 500 can be a component, but not the core.

The cost of diversifying before

achieving the global equity target

Premature Diversification

Premature Diversification is the cost of diversifying before you have reached your Global Equity Target. In most plans, risk tolerance is introduced at the starting line: a questionnaire gauges comfort with volatility, which then maps to a 60/40 or 70/30 mix. That sequence optimizes for emotional comfort rather than economic sufficiency. It prioritizes perceived safety over the probability of actually achieving the outcome.

The academic sequence runs the other way. Once a foundational wealth level is secured, risk preferences can be integrated and allocations can adjust dynamically. This is the essence of Merton’s continuous-time framework: risk and return are traded off in a utility-maximizing way as wealth and horizon evolve. But until the threshold is crossed, introducing risk tolerance into the structure is inefficient. The opportunity cost of diversifying too soon—what we call premature diversification—is material.

There are three layers of cost. First, a lower expected return from holding bonds or diversifiers while the foundation is still being poured. A conventional 60/40 or 70/30 allocation typically reduces expected returns by roughly 1 to 3 percentage points per year relative to a global-equity core. Compounded over decades, that gap translates into years of additional work or materially higher required savings. Second, fees. Advisory overlays, product layers, and internal fund costs commonly add 50 to 200 basis points. Third, taxes. While you are still accumulating toward a single global-equity position, the tax friction of ongoing diversification can be higher than simply building one low-turnover, broad fund position. In combination, these frictions can push the effective drag meaningfully above headline estimates.

The foundation, like concrete, is intentionally boring and uniform: the size of the foundation is the size of your goal. A global, market-cap-weighted equity core is used because its long-run real return and volatility can be bounded well enough to compute time-to-target for a given savings rate. Once the target is met, preference belongs back in the model: the allocation can and should be adjusted to reflect risk appetite, liquidity needs, and other objectives. Before the target is met, preference-driven diversification is typically a form of self-sabotage.

This perspective will read, correctly, as an intellectual challenge to risk-tolerance questionnaires, static asset-allocation models, and certain industry practices. The intent is constructive. Recognizing a common foundation—scaled to the goal—helps more households reach sufficiency faster, which is pro-client and, over time, pro-industry. If you prefer to “diversify early,” quantify the price of that preference. Measure it in years of additional work, after fees and after taxes. Then decide if the comfort is worth the cost.

What is risky and what is risk free

changes in time

The Fundamental Questions

Beyond Risk Tolerance: Redefining Money, Risk, Safety and the Optimal Quantity of Capital

Disregarding risk-tolerance questionnaires and instead prioritizing outcomes strikes some as elegant and disciplined; to others it feels reckless—especially because a large exposure to global equities may not correspond to a person’s stated “risk tolerance.” What if it is too high? Too low? “What about a global financial crisis?” or “What about the Great Depression?” are fair questions.

Outcome-based planning can even suggest combinations of structural and strategic debt. Equally, it can output a 100 percent cash allocation with no debt, which may be too conservative relative to a person’s preference. How do we reconcile these apparent contradictions? By reframing the entry point.

Outcome-based planning begins with your goal. Its formula is simple: take the least amount of risk necessary to achieve it. It is not risk-seeking; it is risk-minimizing. But to understand how that works, you must first redefine what you mean by money, risk, safety, and the optimal quantity of capital required for your goals.

The Goal Is the Risk

This is the central shift. Your goal defines the risk. Without a goal there is no risk, only variance. Once a goal is specified—in the unit of value you’ve chosen—the plan has two fixed points and a heading.

Risk to an individual is not standard deviation; it is the probability of achieving a defined outcome. Wanting $20,000 a month after taxes, after inflation, for the rest of your life is a defined risk event. That goal is riskier than $10,000 and less risky than $50,000. The big idea is simple enough to be overlooked: your goal is your risk.

Rethinking “Risk-Free”

Traditional finance calls short-term U.S. Treasuries the “risk-free asset.” In practice, “risk-free” is frame-dependent. Gold, bitcoin or foreign currencies may feel stable to some and volatile to others. Because your goals are denominated in a consumption currency—dollars, euros, yen—that currency becomes your planning benchmark, not because it is intrinsically safe but because it matches your objective.

For planning purposes, Treasury bills or insured cash approximate a purchasing-power-preserving baseline. Outcome-based planning constantly holds two states in superposition: point-in-time risk and over-time risk. An asset can be risky now and safe over time, or vice versa. Recognizing this time–risk paradox is central.

Money: Unit of Account vs. Store of Value

Money is more than cash in an account. It is a claim on future consumption. Historically it served as both a medium of exchange and a store of value; under today’s fiat currencies, those anchors have separated. A dollar bill at a point in time is not risky—it buys what it buys—but over time inflation and policy steadily erode purchasing power.

Outcome-based planning therefore measures money as net worth—assets minus liabilities—expressed in the unit of account of your goal. A U.S. investor can define that goal in dollars; a European investor could use euros; a family could even choose yen. Few things are priced in gold or bitcoin, but you could choose them as your unit of account. The concept is simple but profound: “store of value” and “unit of value” are not the same thing. Money is net worth, which can be converted into any unit of value.

Once you frame things not as a “portfolio” but as net worth, you open a multidimensional world of tools. The question becomes: how do we optimize total net worth to achieve the goal—using all assets and liabilities together?

The Optimal Quantity of Money™

You can control your quantity of money. You can borrow to create more of it. You can pay down debt to extinguish it. You can store it in any currency. In effect, you can be your own mini-central bank.

In theory, with reasonable assumptions for risk and return, you can compute the net worth required to achieve any specified outcome at any specified confidence level. At the limit, the “optimal quantity of money” is 100 percent in the currency of your goal, with no inflation risk. But unless you’ve inherited or already accumulated that sum, you must take risk to get there.

Put simply: build up your base in global equities first, then move down the capital-allocation line by accumulating currency in the unit of the goal. Over time you rebalance not to a fixed allocation but to the amount of global equities required to achieve the goal. Diversifying too early imposes a measurable drag; diversifying after sufficiency provides flexibility and dry powder.

A Quick Illustration

Assume global equities are expected to earn 6 percent real. You want $10,000 per month after tax in perpetuity. Your Global Equity Target for that goal is about $2 million. If you hold $3 million—$2 million in equities and $1 million in the risk-free asset—and a global crisis cuts equities by 50 percent, you rebalance back to the all-equity target. Your goal remains achievable because your system is built around quantity of money, not a fixed risk score.

The Takeaway

Traditional planning starts with “risk tolerance” and produces a static asset mix. Outcome-based planning starts with a defined outcome and takes the least risk necessary to achieve it. It separates unit of account from store of value, treats your goal as your risk, frames safety around your consumption currency, and dynamically manages toward the optimal quantity of money rather than a static allocation.

The Global Equity Target is simply the starting point; the broader discipline gives you a map for the entire journey.

What looks similar at a distance is,

in operation, materially different

Path efficiency

It is worth pausing on an apparent equivalence. $120,000 divided by $3,000,000 is 4%. On the surface that seems to collapse the difference between traditional “4% rule” planning and outcome-based planning: if you want $120,000 after tax, you “need” $3 million either way.

First, there is no magic. If two approaches use the same risk and return assumptions, their long-run arithmetic must rhyme. The differences lie in path efficiency and in how each system treats risk, failure, and volatility along the way.

1. Path efficiency (time to target)

Outcome-based planning computes a required Global Equity Target and builds to that base first, diversifying later. That simple sequencing improves time to goal. The first $2 million arrives sooner; by the same mechanism, so does the third.

Path efficiency compounds through three channels:

Allocation efficiency: take only the risk required, when required.
Tax efficiency: fewer frictions while accumulating a single low-turnover global fund.
Fee efficiency: fewer layers and products when the core is simple.

Those frictions—when minimized—translate into years, not basis points. Years translate into higher effective expected return on the way up, which can be “spent” later as greater conservatism against the same goal.

2. What counts as failure

Traditional models define failure as “running out of money,” then simulate paths against a fixed allocation and fixed spending using Monte Carlo to gauge sequence-of-returns risk. Outcome-based planning defines failure differently. The objective is to preserve the base in real terms (inflation adjusted) while funding the goal; allocation is dialed to the goal and adapts as wealth and proximity change. Failure is not presumed until the position in global equities falls below the quantity required to sustain the goal, which can be defined and quantified based on conditions. This reframing is foundational to balance-sheet architecture: the variable that moves is the allocation, not the goal.

3. Receptivity to volatility (a simple crisis example)

Consider two investors entering a major drawdown. Each holds $1.0 million in cash (or T-bills) and $2.0 million in global equities. A 50% equity drawdown reduces equities to $1.0 million; both investors experience the same $1.0 million loss in mark-to-market wealth.

Outcome-based investor: Rebalances to the computed Global Equity Target—back to $2.0 million in equities (drawing from cash), with $0 remaining in cash. The go-forward expected real return of the equity sleeve remains ~6% (illustrative), and both mean reversion and random walk dynamics make it reasonably likely that realized returns cluster around that estimate over time.
Traditional investor: Rebalances back to a fixed 60/40 or remains “comfortably” underweight equities—say $1.4 million in equities and $0.6 million in cash—because the questionnaire says they are “moderate.” The expected return of the portfolio is now structurally lower than that required to fund $120,000 with high confidence. Principal must be invaded; the probability of shortfall rises non-linearly.

Same starting wealth, same shock, same stated goal—different rule for volatility—different trajectory.

Reconciling the “4%” intuition

The 4% arithmetic describes a static withdrawal against a static allocation. Outcome-based planning holds the goal fixed and lets the system move around it. The result is not a promise of higher returns; it is a design that minimizes the risk required to reach the same outcome and makes better use of volatility on the way there. What looks similar at a distance is, in operation, materially different.

A framework & a benchmark

Clear decision making

Path efficiency clarifies decision-making across the entire balance sheet. Once a Global Equity Target (GET) is defined, you have a solid benchmark against which everything else can be evaluated: cash, non-core assets, and every form of debt.

Cash reserves: enough, not more

A cash reserve exists to handle short-term shocks, not to be a growth asset. For most households a three-month reserve is sufficient; less materially increases interruption risk, more is typically inefficient. With a GET in place, surplus cash above the reserve can be directed to the target rather than left idle.

Non-core assets: preference follows the foundation

To a purist, every asset aside from the global market portfolio carries idiosyncratic risk. On an unlevered, risk-adjusted basis, neither a primary home nor a strip mall, farmland, a private business, gold, nor bitcoin is expected to dominate a broad, market-cap-weighted basket of global equities over time. In accumulation, assets held outside the GET are systematically sold or sized to build the base first.

Later—once the target is achieved at a sufficient confidence level—non-core assets can be wonderful expressions of preference. Put differently: get the foundation right and a world of choice opens up; get it wrong and financial independence keeps moving away.

For larger fortunes, the rule is a simple carve-out: “Fund $30k/$50k/$100k per month after tax, in perpetuity, with high confidence” inside the framework; express preferences with the rest.

Debt: evaluate by spread to the tangency portfolio

Debt choices become straightforward when viewed against expected return on the tangency portfolio (your global-equity proxy).

Always avoid negative-spread debt. Any borrowing with an expected after-tax cost above the expected after-tax return of global equities destroys path efficiency. This category includes credit cards, payday loans, “buy now, pay later,” and most unsecured personal loans.
Consider positive-spread debt as a tool, not a habit. Borrowing with an expected after-tax cost below the expected after-tax return of the tangency portfolio can improve path efficiency when used deliberately and sized prudently. Student loans, some auto loans, and—most commonly—mortgages fall here

Example: if a fixed-rate mortgage costs 5% and your nominal expected return on the global market portfolio is 9%, the +4% spread can be captured over time. The sequence that preserves optionality is:

Build the GET first (all equity exposure needed to fund the outcome).
Then move down the capital allocation line to establish a meaningful cash/T-bill hedge sized to your goal.
Then amortize low-cost debt as a choice, not a reflex.
The common alternative—paying off the home first and only then saving—usually extends time-to-target and lowers lifetime efficiency.

Practical guardrails for using debt

Positive expected spread is necessary but not sufficient. Apply these filters:

Rate type and term: Favor fixed over variable; match term to horizon; avoid call/prepayment traps.
After-tax math: Compare after-tax borrowing cost to after-tax expected return.
Liquidity buffer: Maintain the cash reserve; do not fund equity exposure with your emergency money.
Sizing: Keep leverage modest; the objective is to minimize required risk, not to maximize return.
Behavioral risk: If debt tempts you to raise lifestyle spending, the spread evaporates.

Why this sequencing matters

The compounding edge comes from collective path efficiencies—allocation, tax, and fee frictions reduced while you are building the base—plus judicious use of low-cost, positive-spread debt. Measured in years to target, not in basis points, the delta is material. As resources grow and confidence rises, the model naturally dials risk down; only then do preferences and non-core assets take center stage.

You Can't Rebalance Against Your House™️

Housing as a consumption preference

In many markets families have built substantial wealth through housing. That equity is real and valuable. In outcome-based planning, however, it enters the framework differently. Housing is treated first as a consumption preference—a place to live—and second as an asset with a positive but generally lower expected return than a globally diversified equity portfolio. Independent of appreciation or depreciation, outcome-based planning recognizes that a home is not a sleeve you can rebalance in and out of quickly.

Traditional planning often either disregards housing altogether or treats it as a checkbox goal (“own a home before retirement”) designed to accommodate a preference or create a sense of safety. Outcome-based planning instead quantifies housing decisions as a function of your net worth relative to your goal. In an outcome-based plan the ideal end state is to be debt-free, but what matters most is the sequencing: build the Global Equity Target first, maintain liquidity while accumulating, and only then pay off low-cost housing debt when it no longer impairs your flexibility.

Outcome-based planning therefore takes a different view. Independent of your return assumptions on your house, liquidity has option value. Owning a home outright extinguishes the option to act when it matters; holding a fixed-rate mortgage while maintaining liquid risk-free assets preserves it. Two households with the same home and the same net worth but different financing structures will experience very different paths and expected outcomes after a shock.

A Simple Example

Imagine two households, each with $3 million in net worth and the same long-term goal of $10,000 per month after tax in perpetuity. Both live in identical $1.5 million homes with identical $1.5 million mortgages at 4%.

Household A pays off the mortgage immediately, ending up with $1.5 million in a paid-off house and $1.5 million invested in global equities.
Household B keeps the mortgage and holds $1.5 million in global equities plus $1.5 million in risk-free assets (cash/T-bills).

A 50% equity drawdown reduces both portfolios’ equities to $0.75 million.

Household A now has $1.5 million locked in a house and $0.75 million in equities. They cannot easily rebalance; to buy more equities they would have to refinance or sell the home.
Household B still has $1.5 million in cash/T-bills and $0.75 million in equities. They can rebalance immediately back to their Global Equity Target by deploying cash—buying equities while they are cheap.

Same net worth, same house, same market shock—different flexibility and different go-forward expected return. Outcome-based planning recognizes this asymmetry and frames early mortgage payoff as a financing choice traded against the option value of liquidity, not as an automatic virtue.

In outcome-based planning you only extinguish the option value of liquidity when it is no longer valuable to you. Mathematically, that point arrives only after you have built enough assets to achieve your goal at your desired level of confidence. At that threshold, paying off the house becomes easier, not harder: instead of dribbling money toward principal for decades without a clear strategy, you can direct all new savings and excess portfolio returns to debt repayment over a relatively short period. This simple sequencing—build the foundation first, then retire low-cost debt—turns a diffuse habit into a focused action and has a transformative impact on an individual’s plan.

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Optimization for wealth accmulation

Outcome-Based Planning during the accumulation phase treats the first twenty working years as a period where path efficiency—not preference—matters most. Rather than beginning with a risk-tolerance questionnaire and a mosaic of goals, it starts with a single anchor goal (usually financial independence) and builds a foundation around it.

Core idea

Most people want, at some point, a stable, inflation-adjusted income in perpetuity. Whether that number is $10,000 or $50,000 per month, the anchor goal can be expressed in dollars and time. From that, one can compute the Global Equity Target (GET)—the minimum holding in a low-cost, globally diversified equity index needed to achieve the goal at a stated confidence level—and the savings rate required to reach it. Employer matches, pensions, and public benefits can be incorporated as bond-equivalents in the calculation.

Contrast with conventional practice

Traditional financial planning tends to begin with a questionnaire measuring “risk tolerance” and then sets a fixed allocation (e.g., 70/30) across multiple funds. Goals are treated as parallel “buckets”—retirement, home purchase, education, travel—each with its own time horizon and model. Diversification, early mortgage payoff, and heavy use of tax-deferred accounts are presented as universal virtues. The result is often premature diversification, excess fees and taxes, and a long, slow grind toward adequacy.

Outcome-Based Planning flips the sequence. It argues that while preferences and risk tolerance matter, they should be incorporated after the foundational base is built. Until then, allocation is driven by what is required to reach the goal—not by comfort scores or “balanced” pie charts.

Elements of the framework

Goal as fixed point: One anchor goal expressed in real dollars; everything else moves around it.
Savings rate as a constraint: Compute and enforce the savings rate needed to hit the anchor goal on schedule; recalculate annually.
Eliminate negative-spread debt first: Any borrowing with after-tax cost above the expected after-tax return of global equities is mathematically wealth-destructive and should be removed.
Build the GET before diversifying: Direct net savings into a single, low-cost global equity index fund until the computed GET is reached. Diversification and preference come later.
Liquidity has option value: Maintain a simple cash reserve (≈3 months’ expenses) but avoid overfunding it. Treat housing as a consumption asset; a paid-off house extinguishes rebalancing flexibility until the anchor goal is secured.
Use structural debt judiciously: Low-cost, fixed-rate, non-callable debt (e.g., mortgages, some student loans) can be held while building the base, then retired quickly once the anchor goal is reached.
Minimize drag: Early in accumulation, taxes, fees, and premature diversification create a drag measured in years to target. Reducing these frictions accelerates time to the base and compounds the advantage.
Reframe risk tolerance: Before the GET, “taking less risk” equates to more years worked. After the GET, risk is dialed down as proximity to the goal increases and preferences re-enter the model.
Handle secondary goals by rule, not drift: Once the anchor goal is on track at the required savings rate, excess can be directed to sub-goals such as home purchase, marriage, or travel with their own amounts, dates, and funding rules.

An Illustrative Example

Two 35-year-olds each earn the same income, have the same savings rate (15%), and own $500,000 homes with $400,000 mortgages at 4%. Each wants $10,000/month after tax in perpetuity beginning at age 60.

Traditional Path (pay down mortgage first):
They direct excess savings to principal for 15 years, arriving at age 50 with a paid-off home but only a modest investment account. They then begin building their portfolio but face compressed time, sequence risk, and fewer compounding years. Their path to $2–3 million of investable assets is slow; many “catch up” years are required.
Outcome-Based Path (build assets first):
They keep the low-cost mortgage, maintain a 3-month cash reserve, and direct all net savings to a global equity index fund until they hit their GET. By age 50 they have both a large portfolio and a mortgage. At that point they redirect all new savings and excess portfolio return to accelerated mortgage payoff. They enter retirement debt-free with a far larger investable base and a shorter time-to-goal.

Even under identical incomes and savings rates, the second household’s sequence produces a dramatically different trajectory. The option value of liquidity, the avoidance of premature diversification, and the compounding of tax and fee efficiency show up as years saved, not just basis points. That time can be converted into greater conservatism later, earlier independence, or more resources for secondary goals.

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Why the second half of the journey is different from the first

Nearing the Global Equity Target

Building to the Global Equity Target (GET) naturally divides into two broad phases. In the first half, growth to target is dominated by new savings; in the second half, it is dominated by compounding of the existing portfolio. This shift has important implications for how volatility, cash buffers, and strategic debt are handled.

Phase One: savings dominates

When your portfolio is small relative to your ongoing contributions, the marginal impact of market returns is limited. If you are saving $50,000 per year into a $200,000 portfolio, a 10% market swing moves the balance by ±$20,000; your contributions outweigh the volatility. In this stage volatility drag still exists mathematically—variance lowers geometric returns relative to arithmetic returns—but the drag is largely offset by the “dollar-cost averaging” of new contributions. Lower prices allow each new dollar to buy more shares, reducing average cost and boosting long-term outcomes.

Phase Two: compounding dominates

As the portfolio grows and annual savings become a smaller percentage of the total, compounding rather than contributions drives growth. A 10% market swing on a $2 million portfolio moves it by ±$200,000; a $50,000 contribution no longer offsets the loss. In this stage volatility drag directly reduces wealth, and the sequence of returns risk becomes paramount. Academically, the probability of a bear market over any given seven-year period is extremely high; the timing is unknowable. The worst case is to encounter a 30–50% drawdown at or just after retirement (e.g., Fall 2008), when withdrawals begin and no new savings are coming in.

Return smoothing rules

At roughly the halfway mark to your GET—often when the portfolio equals 50% of the target value—Outcome-Based Planning begins to incorporate the return-smoothing rules developed in Spiral Theory to stabilize the voyage. In simple terms:

Sell excess returns during bull markets and move the proceeds to risk-free assets (cash/T-bills).
Use the cash buffer to rebalance into equities during drawdowns, restoring the portfolio to the required GET.
If needed, borrow strategically (at low loan-to-value and below expected return) to further correct the path after a large drawdown.

This approach makes the Expected Return of the plan converge more closely to the Actual Return achieved—mathematically reducing the variance drag that sequence risk imposes at the most vulnerable moment.

Role of debt in the second half

Structural debt (long-term, low-rate, non-callable) typically remains in place through this phase; it does not require immediate payoff. Strategic debt—episodic, sized modestly, and used to fund rebalancing during crises—becomes a tool to preserve compounding efficiency. By maintaining a cash buffer and an available credit line, an investor can continue to buy equities when they are cheapest without selling long-term positions at depressed prices.

The effect on outcomes

This framework does not eliminate market risk, but it does change the shape of that risk. Instead of a fixed allocation exposed to a random sequence of returns, you have a goal-fixed system with moving parts designed to keep the trajectory stable. Academically, this reduces the variance of the terminal wealth distribution without lowering expected return—exactly the “variance drag” that depletes conventional plans. The result is a higher probability of meeting the spending goal at retirement even though the underlying asset mix may be similar.

Why moving from a traditional plan to an outcome-based plan requires care

Conversion, Constraints, and Carve-Outs

Outcome-Based Planning presents a prescriptive path from first dollar saved to perpetual spending confidence. But many households don’t start on that path; they arrive at midlife or later with portfolios and liabilities already structured under the traditional model. Converting from one system to the other is possible—but it is not automatic, and done poorly it can be reckless.

The conversion challenge

Consider a 60-year-old who owns a home outright, is undersaved, and holds a 60/40 allocation with a 2% fee. On paper they may have the net worth to reach their goal, but the balance sheet design is inefficient. Assets may be concentrated in tax-deferred accounts that cannot be borrowed against. Housing equity may be large but illiquid. Debt may have been paid down, but not eliminated, leaving fragmented liabilities and a reduced ability to rebalance during shocks.

This is where a Balance Sheet Architect™ becomes valuable—not as an advisor selling products, but as a guide to the structural implications of different choices. Like an architect designing a building, the role is to show possibilities, overlay preferences and constraints, and sequence changes so that conversion strengthens rather than destabilizes the plan. For some households the “conversion” may be gradual—reframing their view of debt while maintaining a traditional 70/30 allocation. For others it may involve rebalancing between tax-deferred and taxable accounts, restructuring liabilities, or creating a dedicated liquidity sleeve. Academic tools (like Shiller’s CAPE for valuation or option-style hedges for transition) can be used to measure and manage these shifts.

Carve-outs for ultra-affluent households

At the other end of the spectrum, ultra-affluent families can use the same framework to carve out defined endowments inside their balance sheet. In the past, a common pattern was “$3 million in municipal bonds at 4% tax-free to generate $10,000 per month.” For some families the number was $10 million or $50 million, but the principle was the same: dedicate a block of capital to fund a stable spending stream and then manage the remainder more aggressively.

Outcome-Based Planning makes this explicit and quantifiable. Any investor can specify:

X dollars allocated,
Y target real return,
Z confidence level (99%, 99.9%, etc.),

and calculate the required quantity of money in global equities and the risk-free asset to meet that spending goal perpetually. Once the carve-out is set, the rest of the balance sheet can be invested or spent according to preference—aggressively or conservatively—without jeopardizing the anchor.

The key principle

Conversion is not about abandoning what you’ve built. It is about sequencing assets, liabilities, and preferences so the core base is established first and the optionality of liquidity is preserved until it is no longer valuable. Done correctly, conversion turns a static, fee-heavy, illiquid structure into a dynamic system where goals drive allocation rather than the other way around.

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