As a Wealth Management Consultant, I'm often asked two questions "What is a financial plan?" and "Is a financial plan different from investment management?" In short, yes—financial planning and investment management are two distinct wealth management tools that work together to help you achieve your short- and long-term financial goals.
Below, I've outlined both topics in a little more detail, as well as defined some of the key aspects of each:
What is a financial plan?
A financial plan is an overall strategy to help you reach your goals. Through data gathering, analysis, and guidance, an advisor like myself creates a road map that helps you achieve financial comfort during your life, while allowing for the efficient transfer of assets to your heirs. Financial planning is an ongoing process that is driven by your changing needs and goals over time.
A financial plan can include any of the following:
- Asset allocation planning: a series of asset classes and allocation strategies to help you achieve your goals based on your risk tolerance and investment objectives.
- Business planning: strategies for managing your business throughout its life cycle.
- Education planning: college savings and other education-related strategies, such as student loans and financial aid.
- Retirement income planning: the development and refinement of an income distribution plan for your nonworking years, including social security strategies.
- Advanced insurance planning: identifying the safety nets that your investments will require as your assets and responsibilities grow.
- Estate planning: strategies to protect your assets and transfer your wealth according to your wishes.
- Tax planning: strategies to minimize your tax liability.
- Charitable giving: how do your philanthropic goals impact your investments, especially when considering topics like taxation.
What is investment management?
Due to it's distinct and complex nature, investment management is typically carved out as a separate service under the umbrella of financial planning. Shaping your investment portfolio is a collaborative effort between yourself and a financial advisor, and the result is something that should be monitored regularly. Your investment portfolio should support the personal needs and goals outlined in your financial plan.
Investment management can include any of the following:
- Investment objective: what is your goal for your portfolio?
- Risk tolerance: what level of risk are you comfortable with?
- Investment decisions: where would you like to invest (i.e. stocks, bonds, CDs)?
- Contributions and distributions: will you contribute to your plan over time, or make one up-front investment? Will you withdraw from the portfolio, or take income payments?
- Ongoing monitoring: what level of monitoring is needed for your account(s) or investments?
Basically, think of financial planning as the foundation, and investment management as the building blocks—used together, they can help you secure your financial future.
As a guest blogger, I'm unable to respond to comments posted below, but if you have any questions about financial planning, please feel free to contact me directly and I will be happy to help!
Kristen Zavaski is a guest blogger, representing Axial Financial Group in Burlington, MA. She offers securities as a Registered Representative of Commonwealth Financial Network, Member FINRA/SIPC. CRR, LLP (also represented as CRR, CRR CPA), Axial Financial Group, and Commonwealth Financial Network are separate and unrelated entities. Kristen can be reached at 781-273-1400 or firstname.lastname@example.org. This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend that you consult a tax preparer, professional tax advisor, or lawyer.