• Grant Dawes

Financial Planning VS Investment Planning

Updated: May 11


As someone who works in the wealth management industry, it never ceases to amaze me that the first question I usually receive when speaking about my work with potential investors is: “So, what are your returns like?” to which I always reply: “Well, that all depends on what you need.”

While this may seem like a straightforward and legitimate question, my response tends to elicit the same type of reply, whether it is a novice investor looking to build their first portfolio, or a seasoned investor looking for someone else to take the reigns and manage their wealth for them. Typically, I am first met with a look of confusion, followed by curiosity that inevitably sparks the same response: “You know I never really thought of that before.”

This is a common situation for most investors, they like to hear a hypothetical return and then they decide in their head whether that seems good or bad, often with no context, while chasing the highest return number. In my world this is putting the cart ahead of the horse.

Before looking at expected returns on investments it is important to first start with a financial plan. A financial plan is not just about investing money. A financial plan first seeks to map out your goals and objectives, followed by developing a plan around all areas of an individual’s finances. This includes investment planning and also other areas such as savings, taxes, retirement, inheritance, education, estate planning, risk management and more - all designed to achieve your financial goals and objectives.

Why is this necessary you may ask? A financial plan will reveal gaps in an investment plan that may not provide enough return for goals and objectives. On the flip side, which happens to be more common, is that the current investment plan may be too aggressive in that it is taking more risk than need be taken. If your financial plan reveals that its success only requires a rate of return of 6% but you happen to have a current portfolio with an expected return of 9%, (which would likely entail significant equity exposure) — then you are taking unnecessary risk.

Remember that if you are willing to take the risk of a 9% expected return then you should be prepared for the potential loss of a magnitude of 9% (with declines exceeding 50% during the Great Financial Crisis). Unnecessary risks like this can be devastating to achieving your goals and objectives —which can take years to recover from.

As wealth managers Northland Wealth not only has the in-house expertise to create comprehensive financial plans for our clients but also the investment plans that go with it. After completion of a financial plan we are able to determine a rate of return that will meet your goals and objectives. We then create a bespoke investment plan/strategy which is targeted to achieving that rate of return and ultimately all of your goals and objectives, while minimizing risk.

At Northland Wealth we encourage all our clients to take the time to go through the process of creating a financial plan. While it may seem like a daunting task at first, it is something that is absolutely necessary if you want to have the greatest success in achieving your financial goals. If your family does not have a financial plan, or has not updated it in some time, please contact us so that we can work with your family to provide a holistic Wealth Plan.

Grant Dawes, CIM, CFP, TEP


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