A few years ago, we touched on the topic of Investing vs Financial Planning. Spoiler: they aren’t always exactly the same thing. Today, we’re revisiting that topic.

The Grocery List Analogy

When we bring a list and plan for a grocery trip, our likelihood of success goes up tremendously. When we don’t bring a list with us, sometimes we’ll buy things we don’t need (or forget things that we do). Have you ever asked yourself whether you handle your retirement plans the same way? Are we buying investments or are we following a financial plan?

So What’s the Problem?

People often assume these two ideas are one in the same, however, they are actually two completely different behaviors. People who buy investments generally define success as a positive market gain. While this sounds like a very logical expectation of an investment, three main problems come with quantifying that success:

  • Over what period of time?
  • How much positive gain was there?
  • And when do we sell?

In other words: A positive gain isn’t merely a win and negative gain a loss. The movement of the market over the first week, month, or year of the investment can have a huge influence over our behaviors. Most people would agree that determining the direction of the market over a short period of time is nearly impossible. However, it becomes the key factor in determining success for investment buyers.

Buying investments is often about “wins” and gains – whereas financial planning has everything to do with specific and clearly defined objectives through the use of market investments. Financial plans use market-related investments as a way to help move the plan forward. But, success isn’t solely based on market movements. Contribution amounts, portfolio rebalancing, and withdrawal amounts and timing all factor into the successful outcome of a plan.

If you’re simply buying investments and not using a financial plan, contact us – we’re happy to help.