Investment plan vs. financial plan…. what’s the difference?


In our business, we come across many Canadians who are diligently socking away savings for their retirement. RRSP contributions, TFSA contributions, non-registered assets and if they are fortunate enough, their savings will be augmented by an employer sponsored pension plan.

Sounds like a great plan, no? Their first mistake is assuming that their financial plan is simply investing money. What I have described above is nothing more than responsible Canadians setting aside money to fund their retirement income needs. But investing money, crossing your fingers and hoping for the best does not make a financial plan.

A full financial plan starts with goal setting to determine what you want in retirement (i.e. future income needs; vacation allotment; future asset purchases; etc.). The purpose of creating a financial plan is to determine if how you are currently living, will achieve your stated goals.

Why is this important? Investors may have a portfolio that is not suitable for their long-term objectives. We have seen too often where clients have portfolios heavily weighted to equities because their broker/advisor has projected double-digit returns. If the success of their financial plan only requires a conservative rate of return (i.e. 5% annualized), then they are taking unnecessary risks in their portfolio. A mistake like this could have been avoided by first creating a financial plan.

Simply stated, investing plays a role in a successful financial plan, but does not make up a full financial plan.

To determine if your portfolio is appropriate for your long-term objectives, contact one of our financial planners today.

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