What’s the Plan?
What’s the Plan?
Robin Powell | September 10, 2020
IF YOU ASKED everyday Americans to define a financial plan, chances are they’ll talk about investment strategy. And for many people who call themselves financial advisors, that’s what a financial plan amounts to.
But a real plan is so much more than that.
To be sure, investment strategy will form part of a financial plan. But a strategy that isn’t moored to each individual’s goals, risk tolerance, financial situation, family circumstances and values isn’t really a strategy at all. It is more likely just a product that’s being sold off the shelf.
A real financial plan—as drawn up and constantly reviewed by a good financial planner—is really a living and breathing creation that begins with each person’s goals and aspirations, and then works back from there. The goals determine the strategy, not vice versa.
Another identifying feature of a bona fide plan is there isn’t just one goal or one strategy. Most people will have a long-term goal, such as generating sufficient income in retirement. But they will also have medium-term goals, like funding the children’s education, paying off the mortgage or helping with the care of elderly parents. On top of that, they’ll have short-term goals, like next year’s vacation. Each goal will come with its own strategy.
Then there’s the fact that your life rarely moves in straight lines and smooth roads. Recent events provide a stark reminder that the unexpected and unplanned can force us to rethink even the most locked-in goals. This means that managing risk will be a pivotal element of any plan worth its salt: Cash needs in a crisis will be part of the mix, as will life and disability insurance. What will happen to your estate after you’re gone has to be considered as well.
Furthermore, a good plan will take account of the day-to-day as well as the long term. A planner will assess your current financial situation, including regular incomings and outgoings, and how best to manage your assets and liabilities—what you own and what you owe.
The investment part of the strategy—the part that most people believe constitutes a financial plan—isn’t as straightforward as you might think, either. Markets are unpredictable, as we’ve seen recently. A planner needs to balance the need for strategies that maximize your chances of reaching your goals with those that you can actually live with.
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