A portfolio is not a plan: The power of comprehensive financial planning

If you’re an investor, whether novice or more experienced— you may view your growing investment portfolios, like ETFs and maybe some individual stocks, as the be-all and end-all of your future financial success. But the reality is a portfolio is not a plan. Rather, it’s just one piece of a larger puzzle — a comprehensive financial plan, one that’s vital in achieving long-term financial stability and growth.

Why a financial plan?

There are three key reasons why a comprehensive financial plan is so important:

  1. It offers a holistic approach: A financial plan doesn’t just focus on your investments or your retirement that’s likely decades away. Rather, it encompasses all aspects of your financial life today. This can include budgeting, savings, insurance, tax planning, retirement planning, the correct accounts to fund in what order, and estate considerations. It’s about understanding how these elements work together to support your overall financial health. Having this 360-view provides the most effective outcome for the clients and their families
  2. It’s a goal-oriented strategy: Every individual has unique financial goals, whether it’s buying a home, saving for a dream vacation or preparing for retirement. A financial plan helps tailor your investments and savings strategies to these specific goals, so that each financial decision you make moves you closer to achieving them. Often clients have financial goals that they aren’t even realizing – such as the dream to buy a cottage. Working with an advisor and revisiting a financial plan often helps to probe for these tertiary goals.
  3. It evolves with life changes: Often while the end goal may stay the same clients’ lives are never static and the route there is filled with change, ups and downs. As your life evolves, so do your financial needs, goals and risk tolerance. That’s why a financial plan is never static — it adapts to changes in tandem with progress in your career, your growing family or unexpected life events, so your financial strategy can stay aligned with your current situation.

Two other factors to keep in mind

Studies consistently show that building a financial plan early, with the help of a professional financial advisor, can lead to better investment returns compared to managing your portfolio by yourself. This can be due to a variety of factors but the most notable is helping you avoid emotion-based decisions, especially during volatile markets. Advisors anchor themselves to a client’s specific goals and timelines which helps everyone have their eye on the horizon, despite short term volatility. In addition, advisors offer expertise, experience and objectivity along with an ability to provide ongoing monitoring and adjustments while you’re busy taking care of living life.

Finally — and you’ve probably heard this before! — starting to invest early, even with modest amounts, can have profound effects. For example, investing in a standard 80/20 portfolio (80% stocks and 20% bonds) with just a small initial contribution and modest additions every month can grow significantly over time thanks to the power of compounding interest. For instance, investing $1,000 to start and making regular contributions of about $50 a month over 30 years, could provide you with $100,000 around retirement time. Now, imagine bumping that up to $100 a month — the growth becomes substantially more powerful. This context is built into financial plans and helps clients to stay grounded in the “why” and what they are working towards.

Remember, a portfolio is a key component of a plan, but it’s not the plan itself. By working with a financial advisor to develop a comprehensive financial plan, you can ensure that all aspects of your financial life are working in harmony. No matter how small your starting point, the journey towards worry-free financial freedom begins with a solid, comprehensive plan.

If you have questions about creating a financial plan for your future, reach out to us for a chat anytime.