Broker Check

Action Plan

What might work better for you than a financial plan? An action plan.

No doubt financial planning is useful. It is often the first step in a financial advisory relationship, and certified financial planners are given due respect for having met the relatively stringent criteria that enables them to use that trademark. The financial planning process can be particularly helpful when a client has faulty assumptions about their spending habits, or might be missing some crucial factors that lead to incorrect projections.

The final deliverable for a financial plan is often a stack (physical or digital) of analyses, charts, and graphs. It will show how projected scenarios are likely to resolve under different assumptions for the future and how changes now might generate different results later. At best, it can highlight glaring unsustainabilities and help shape more realistic expectations. Certainly beneficial information and a worthy effort. 

However, a formal financial plan may not be the best method to answer the question that many investors really want it to:  “What do I do with my money?”

For the investor that is generally organized with a solid cashflow and a bit left over to risk for the promise of making it grow, the utility of a formal plan may be rather minimal. As circumstances change and old assumptions become invalid or irrelevant, any projections quickly become useless. Going through the effort and expense of planning every few years for such limited benefit is dissuasive at least. 

Instead, consider an action plan, or sometimes referred to as an Investment Policy Statement; A basic set of rules that gets to the heart of when and how to place your money for maximum return at the level of risk that is comfortable. These are also guidelines that should not change as markets change, but will instead be applicable no matter what the circumstances. 

For example, most investors are already familiar with the most basic action plan of all: Buy low and sell high. 

Unfortunately, this is easier said than done... what exactly is "High" or "Low"? Are there areas of investment or specific companies that are off-limits or especially preferred? How much time do your investments have to grow and what money might you need for spending in the meantime? 

These are key questions to answer before putting your money at risk, and a good financial advisor can (and should!) help you pin down the details first.  A full financial plan is not bad to have, but for many investors it is a solid action plan that can make a real difference.