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Wealth Management 101: Financial Plan vs Investment Plan

As you map out your financial future based on both short- and long-term goals, there are a variety of money managing vehicles you can use to get from point A to point B. You’ll be mapping out budgeting, saving, spending and investments, and the strategy used for each can get a little confusing.

Two terms you have definitely heard during your meetings with an advisor are “investment plan” and “financial plan”—which sound very similar, but are different things. We’ll dive into the similarities and differences between the two and what to know when mapping out both with your advisor.

What Is an Investment Plan?

An investment plan is part of a comprehensive financial plan that maps out an investing strategy to help you meet your long and short term goals, such as retirement or buying a house.

By taking into account your risk tolerance, diversification and asset allocation, investment plans are typically designed to help you decide how much to invest in stocks, bonds, cash and real estate in order to maximize your returns. They will also help you choose amongst the broad range of investments available, including those inside a company sponsored retirement plan.

Having an investment plan will provide you with a sound strategy to follow and stick with, even when you see your investments fluctuate during a time of market volatility.

When working with a CFP® professional to develop an investment plan that is best for you and your needs, it’s important to address the following questions:

  • What are your goals
  • When do you need to reach those goals?
  • How much do you have to invest now or incrementally, as time goes by?
  • Do you have concerns about taxes, or assets you already own?
  • How much risk are you comfortable with?
  • How often do you want to adjust your plan?
While investing is certainly part of a successful financial plan, there is so much more to be considered to develop a holistic and secure financial plan.

What Is a Financial Plan?

A financial plan is a valuation of your current financial condition, a summary of your goals and a roadmap to help you get from the present to the financial future you want. A thorough financial plan will address current savings, budgeting, insurance, investments, taxes, estate planning and retirement.

When mapping out a financial plan, you’ll need to consider future income needs, vacation allotment, future asset purchases, and basically anything else that will significantly impact your financial life to make sure that your current financial state will keep you on track to achieving your goals.

A comprehensive financial plan prepared by a CFP® professional could include some or all of the following:

  • Summary of your assets and debt
  • Budget based on income and expenses to help you save for the future
  • Evaluation of your insurance coverage and needs
  • Investment plan for how to growth the money you put aside
  • Estate plan
  • Consideration of the impact of income taxes and changes in the law.

An effective financial plan should be regularly updated to reflect any changes that will affect your financial life to keep you on track to achieving your goals.

Different CFP® professionals may focus on different elements of financial planning, so you should be clear about what you’re expecting from a financial plan prior to your meeting.

Financial planning is a dynamic process. Your financial goals may evolve over the years due to shifts in your lifestyle or circumstances such as an inheritance, career change, marriage, house purchase or building a family.

As you begin to consider how best to manage your financial future, you should feel confident knowing that with a CFP® professional, you’re working with someone committed to providing the highest standard of financial planning and making sure you’re set up for financial success.

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