Wealth seems to be measured by a simple number, such as a person's net worth. ?
But economics tells us that wealth is much more complicated than this number. Its structure is an intricate system. ?
first,
Wealth is made up of many forms of assets. ?
These assets include tangible assets such as cash, real estate, cars, etc., as well as intangible assets such as equity, debt, patented technology, etc.
Different forms of assets need to be reasonably valued when calculating wealth, but there is great uncertainty in the valuation process. ❓
For example, the valuation of listed company equity is often calculated based on the current stock price, but this only represents a marginal price. ?
If major shareholders try to sell all their shares, the number of buyers and bid prices in the market will change accordingly, and the final realization price will be much lower than the initial valuation. ?
On the other hand, different asset forms have different liquidity and risk characteristics. ??
Cash has the highest liquidity but the lowest yield; bonds have less risk but limited returns;?
Equity and venture capital investments carry higher risks, but also have potentially high returns. ??
The proportion of various asset forms in the wealth structure will determine the liquidity, risk and return characteristics of wealth. ⚖️
Too much pursuit of high returns may bring extremely high risks; but too much caution will make it difficult to obtain excess returns. ?
Secondly, the structure of wealth is also reflected in its income model. ?⌛
Some assets such as bank deposits and bonds can bring continuous interest income;?
Some require long-term investment before they can make a profit, such as factories?, renting houses, etc.; ⏳
There are also some that only rely on cash transfers after asset appreciation, such as real estate, art, etc. ?↗️
Different income models bring different income rhythms, which also makes wealth calculations more complicated. ?
Finally, the wealth structure is also subject to the owner's organizational form. ?????
There are big differences between personal wealth and corporate wealth in terms of taxation, protection and inheritance.
For some large family business groups, their family wealth and business wealth have a unique structural form. ?
In summary, the structure of wealth is far more complex than a simple number, and requires consideration of multiple factors such as asset form, risk characteristics, income model, and ownership structure. ?
Ignoring this complexity and using a single numerical value to compare and judge wealth will bring serious one-sidedness and bias. ⚠️
Only by understanding the complexity of wealth structures can we have a deeper understanding of wealth management for individuals, families and businesses. ?
This requires theoretical support from economics and finance so that we will not be confused and blinded by the appearance of wealth. ?
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