People often use the words financial planning and investment planning interchangeably. But in fact, there is a significant difference between the two. The primary distinction between financial planning and investment planning is the specific area of emphasis. While financial planning is the overarching framework, investment planning is a vehicle used to carry out your financial plans.
To help you understand it better, here are some key differences between the two concepts:
A financial planner, with their experience, will advise you to start thinking about your retirement in 20 or 30 years. Having some sort of plan is better than no plan at all. Investment planning, focuses on how various asset classes, such as stock funds, debt funds, liquid funds, and gold funds, are expected to perform in the following years and how that forecast aligns with your financial plans.
In discussing investment planning, the emphasis is primarily on asset types. You concentrate on stock, debt, gold, liquid assets, and more. The aim of an investment plan is to work toward your different financial goals. Investment planning is a tool used in implementing your financial plans.
Financial Planning Is the Framework While Investment Planning Is All about Detailing
This is one of the fundamental distinctions between financial and investment planning. The financial plan sets forth the general foundation for working toward your financial objectives. It poses questions like – When do you plan to retire, and how much money will you need? How do you plan for both short-term and long-term objectives? It allows you to understand your risk tolerance and how much risk you should take when making your investments
That is the kind of framework-related issue that financial planning addresses. Investment planning delves much further into the nitty-gritty of asset mix, asset returns, diversification,etc. The investment plan is your road map and investment planning is the vehicle to get your destination. The first is conception, and the second is implementation.
Financial Planning Requires Structural Shifts
While your financial plan likely includes intentional flexibility, the overall long-term goals typically remain the same . For example, funding retirement. While some of your short term financial goals and plans may change, your long-term goals are less likely to fluctuate.
Investment strategy must be evaluated regularly. Indeed, it is recommended that you evaluate your investment plan often to monitor the progress of your investment and evaluate it’s viability with your financial goals. The investment plan may be rebalanced in response to different circumstances such as changes in asset prices, macroeconomic changes, the underperformance of an asset class, and more.
Disclaimer: This article is limited to providing general information about financial services and access to traditional investment-related information, general investing publications, and the like. Nothing in this article is a solicitation to transact in securities, or to provide personalized investment advice. The advisor’s professional designation, certification, education, degree, or license is not a guarantee of satisfaction or results should a client engage the advisor. All investments involve risk of loss, different types of investments involve differing levels of risk, and there is no assurance that the future performance of any investment will be profitable or match any prior performance.
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