Financial planning should drive the investment plan, not the other way around

I get a fair number of prospective client calls and a number of them lead off with questions around investing, investment management, returns, etc. Asking a financial planner about investments first is putting the cart before the horse. It’s not how good financial planners operate. Return-chasing is a game you should not play. If that’s all these prospective clients want, I’m not that guy and refer them away. Further, how in the world can one get to a good investment strategy without a financial plan first? Success is driven by planning, not reacting. Investing without a plan is just reacting.

As an aside, if you ever call a “financial planner” and they indulge your investment management questions first without asking about goals, values, resources, risk management, etc., then you’re likely not talking to a real financial planner.

All that said, folks who lead with investments might not know much about the value of planning. If given the opportunity, I try to enlighten them. Building a financial plan before investing is critical for success. This is what I think works if you’re going to eventually create an investment plan.

  1. Start with good financial planning. I’m talking real financial planning, not doing something that takes 10 to 20 input variables and produces a two-inch binder that you’ll never read, which maybe only took 30 to 60 minutes to produce. And avoid getting a plan that ultimately is designed to sell you some insurance or an investment account. This is sales, not planning.

    Real planning is a process that takes a lot of time and requires the advisor and client to work together over time — to plan. It is a shared experience unencumbered by conflicts of interest.

    It starts with a very detailed look at goals, values, and objectives. I don’t know if this is true, but I read once that only 3% of the population knows what their goals are and then creates a plan to achieve them. That’s unfortunate. By writing down your goals you immediately place yourself among those 3%. Congratulations on this first step.

    Then move onto a detailed review of cash flow, savings targets, insurance needs, estate planning awareness (which requires an attorney), retirement projections, education projections, and other goal achievement reviews.

    Build the plan, then work the plan. The plan is never static and is not a one-time event. It can’t be, because life happens and assumptions change regularly.

  2. Remember the following truths about financial planning in order to be successful:
    1. If you spend too much and/or save too little, investing doesn’t matter. As one client astutely pointed out to me recently, you’ll never spend your way to wealth. Spending problems destroy wealth accumulation and preservation. There’s no return that you can achieve that will save you from your spending and saving problems.
    2. You should fully insure all potential catastrophes and have a current estate plan in place. If you can’t pay for risks today, you should buy insurance. If you fail to adequately insure yourself from catastrophe, there’s no investment return that can save you from those risks.
    3. Ideally, if you’re younger, you should be saving at least 15% to 25% of your gross income to retire. For every decade of delay, you’ll need to save at least 10% more per decade. See my article on retirement savings.
    4. In retirement, assuming it’s a long retirement (20 to 30 years), you should not take more than 3% to 5% of your portfolio annually to maximize your probability of not dying broke. This all depends on age, portfolio design, and time horizon, of course, but serves as a reasonable guideline. Again, see my article on retirement.
    5. Focus your energy and time on enjoyable work and human capital development; there is no portfolio strategy on the planet that can replace the value of human capital.
  3. Most everything in investing is a “belief.” There are very few things anyone knows with certainty. Some certainties do — I think (sense the humor here?) — exist, including:
    1. Every investment comes with risk. In a world of inflation, volatility, and taxes, among many other “unknowns,” there is absolutely no such thing as a true risk-free investment!
    2. Risk and return are related, but taking risks does NOT guarantee you a return. If there were certainties, there would be no risk and thus, no returns. Excess returns only happen because the risk(s) never materialized. If they had been realized, you would not get those returns!
    3. All else equal, optimizing costs and being tax-aware should improve after-tax returns.
    4. No one knows the future.
  4. There is one “belief” that is necessary for investing. I have the naive belief that the world wants to be in a better place 5, 10, 20, and even 50 years from now — that belief is necessary for investing to work. This is why we have stocks in the portfolio. If you lack optimism, don’t invest in the future.
  5. Get your own risk tolerance, investment education, and capacity lined up to invest. Be aware of what that truly means to you. You should clearly understand the risks before investing.

If all the above is lined up, and you feel like your plan honors your situation and risk considerations, I think finally you’re ready to talk about investments.

MICHAEL DUBIS is a fee-only CERTIFIED FINANCIAL PLANNER™ and president of Michael A. Dubis Financial Planning LLC. He previously served as lecturer at the University of Wisconsin Business School James A. Graaskamp Center for Real Estate. Mike can be reached at


This article contains the opinions of the author. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services described in this website or that of the author’s.

Mike Dubis does not guarantee the relevancy, appropriateness, or accuracy of any outside information or links. Mike Dubis does not render or offer to render personalized investment advice or financial planning advice through this medium. All references that might be made to an investment or portfolio’s performance are based on historical data and one should not assume that this performance will continue in the future.


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