During general discussions, we often use the terms investment planning and financial planning interchangeably. But, there are major differences between the two terms. While these terms do blend into each other, one needs to consciously know that they are different. You can check bitcoin bonds here.
The primary difference between investment planning and financial planning can be recognized in their area of focus. While investment planning incorporates the details of plan execution, financial planning is the wider framework.
Let’s have a look at 5 crucial aspects that would put the investment planning vs financial planning debate into better perspective.
Investment planning is the detailing, financial planning is the framework.
This is the fundamental difference between investment planning and financial planning. Financial plan structures and design an extensive framework to achieve set financial goals. Financial planning answers questions like when do you want to retire? How much funds do you need at retirement? What’s your risk appetite? What are the plans for short and long-term goals? Are the goals crisis-proof?
On the other hand, investment planning is more involved in the detailing of asset returns, asset mix, diversification, and so on. The investment plan serves as the pathway to a financial plan. One is ingenuity while the other is execution.
Financial planning strategize deep into the further future
You would likely see most financial planners talking and planning into the future. Financial planners strategize on situations like your kid’s university education, or your retirement, which is due after 18 years and 30 years respectively. Then you wonder how practical it is to plan that far away into the future. But that is what financial planning entails! Financial planning is based on the assumption that a decent approximation is better than no plans
As regards investment planning, a smarter and shorter approach and perspective are considered. Investment planning evaluates how various classes like debt funds, equity funds, gold funds, and liquid funds will perform in the years to come. It then analyzes how all of these factors will influence your journey towards achieving your goals.
Investment planning is about bargains and interest; financial planning is a lot more
When it comes to investment planning, the attention is always on asset classes. There’s a distinct focus on debt, liquid assets, equity, gold, and so on. The idea here is to manage your mix of assets in a way that gets you closer to your financial goals in an easier way.
Financial planning involves more. It encompasses everything vital to help you achieve your goals and dreams. Hence, financial planning plays a major role in helping you pay off your debt, particularly high-cost debt. Financial planning also focuses on products that help reduce risks; products like health insurance, liability insurance, asset insurance, and life insurance.
Financial planning has more to do with structural shifts than constant monitoring
A financial plan is usually a fixed document. You can’t keep re-examining your financial plan and making constant changes to it. Once you’ve established your financial plan, its sanctity should be respected for many years. A valid reason for re-examining your financial plan is if there’s a structural change in asset class returns. Another reason would be if your financial situation experiences a major change.
On the other hand, investment plans always need to be re-examined. In fact, it’s best to review an investment plan at least once every year. This will help set an objective of rebalancing the investment plan based on current events. Investment plans can be rebalanced under certain conditions such as a change in asset values, poor performance of asset class, macro changes, and so on. As a matter of fact, rebalancing and revising your investment plan is a great weapons mechanism. This will help you move towards yogoesos seamlessly.
A financial plan is unique like your fingerprint
A single financial plan cannot be used for two persons hence the uniqueness. The financial plan is a broad combination of liabilities, assets, liquidity, insurance, and plans. The financial plan is personal to each individual.
The investment plan, on the other hand, can serve as a template. It can be designed to have a mix of equity and debt in a ratio of 70:30 in favor of debt or equity. It depends on how you want it. The idea is that an investment plan can be quantified and be part of a known set of possibilities. Therefore the investment plan can be used by anyone.
Conclusion.
This debate summarizes that the investment plan is a combination of actions that can be used along the way to financial freedom. The financial plan is the broad framework that defines your objectives.
Also published on Medium.
