Functional Capacity measures the present potential of wealth to fulfill its chosen Purpose at the required Timing.
Account balances and investment returns describe what you own and how it has performed. They do not, by themselves, show whether the right resources will be ready for the right needs at the right moments.
Function of Wealth begins with the human questions: What does this wealth need to do? When will it need to do it? Those chosen outcomes are called Purpose, and the moments when they must be fulfilled are called Timing.
Functional Capacity looks forward from today. It measures present potential before wealth must act. Function is different: it is established only when Purpose is fulfilled at Timing.
Functional Allocation identifies what each Resource is assigned to do. It does not begin with stocks, bonds, account types, or a conventional risk label. It begins with the need and the time available.
Serves near-term Timing. It must be liquid and accessible when required and must not depend on favorable market conditions.
Serves intermediate Timing. It requires contractually established protection from market loss when needed. Any potentially higher return than Availability must arise from the economics of committing liquidity for longer—not merely expected market performance.
Serves long-term Timing for which the Agent can accept market exposure. Any Resource with downside market-volatility exposure belongs in Growth.
Any Resource with downside market-volatility exposure is classified as Growth for Functional Allocation purposes. Alignment then tests whether that Growth assignment is compatible with the Purpose and Timing the Resource serves. A bond investment, balanced fund, or investment described as “conservative” is not automatically Availability or Stability simply because of its label.
Alignment asks whether each Resource is suited to its assigned Purpose and Timing. It is the first priority because an otherwise efficient Structure cannot make up for money being exposed to the wrong risk when it is needed.
The three factors answer different questions:
Are the Resources positioned to serve the Requirements at their exact Timings?
Is there enough? Ability compares gross Resources with total Required Resources.
How effectively do the Allocation and Location of those Resources support their assigned work?
Ability = Current Gross Available Resources ÷ Current Required Resources
A MODELED_PROPOSED measurement uses the corresponding modeled gross available and required amounts for that state.
Ability can exceed 100% when Resources exceed Requirements. If money leaves the Structure—for example, to pay tax—Ability can fall even when other parts of the Design improve.
In the linked fictional Case Study, a $25,000 modeled conversion-tax payment reduces gross Resources from $1,200,000 to $1,175,000. With Required Resources unchanged at $1,000,000, Ability falls from 120.0000% to 117.5000%. This is an Ability effect—not an Alignment or Location penalty.
Efficiency evaluates how effectively aligned Resources perform their assigned work. Allocation identifies the job. Functional Location identifies the Tax Domain in which a Resource is held: Taxable, Tax Deferred, or Tax Free. Changing Location does not automatically change Allocation.
Measures the prospective functional benefit or burden associated with the Resource assignments.
Allocation Efficiency = 1 + Portfolio Functional Alpha
Recognizes the remaining prospective equivalent tax effect without counting the same tax cost twice.
PETR = Prospective Equivalent Tax Effect ÷ Gross Resources
Location Efficiency = 1 − PETR
Efficiency = Allocation Efficiency × Location Efficiency
A Roth account’s Tax Free Location does not establish its Functional Allocation. Its Allocation depends on the economic characteristics of the Resource and the Purpose and Timing it serves.
A modeled Roth conversion illustrates the distinction. Moving eligible Resources from Tax Deferred to Tax Free changes Location and the remaining prospective tax effect. Paying the conversion tax from other Resources reduces gross Resources and Ability. Neither event, by itself, corrects an Alignment problem.
Alignment is capped. Ability and Efficiency are uncapped, so Functional Capacity may exceed 100%. That does not mean a person has “passed,” that future Function is assured, or that more capacity is always better.
Measurement depends on evidence. A modeled result is conditional on the stated assumptions and on later implementing Resources or arrangements that actually satisfy the recorded access, liquidity, principal-preservation, contractual-value, Timing, tax, and cost specifications.
Present measured potential, evidence limitations, and where a modeled Structure differs from the Current Structure.
A prediction, guarantee, person score, product selection, implemented result, or observed Function.
Design specifies the functional work required of the Structure. A later recommendation may identify Resources or arrangements capable of satisfying that Design. Implementation executes the accepted Design. A Modeled Proposed state remains distinct from an Implemented and Remeasured state.
Functional Measurement may identify an Opportunity when evidence demonstrates potential improvement in Functional Capacity. An Opportunity does not independently select a recommendation, specify Design, or authorize Implementation.