By T. Eric Reich
When most people hear the words “financial planning,” their mind goes straight to investments. What stocks should I own? Is the market too high? Did my account beat the market this year? Those are all fair questions, and investing is certainly part of the picture. But in my opinion, one of the biggest misconceptions I run into is the belief that a financial plan is just an investment portfolio. It isn’t. This week, let’s talk about all the other pieces that make up a real plan, because the investments are often the easy part.
Before we ever talk about investments, we have to talk about cash flow — what’s coming in and what’s going out. You can pick the greatest investments in the world, but if you’re spending more than you make, none of it matters. Understanding your cash flow, how much you save, and where your money actually goes is the foundation everything else is built on. A great return on a tiny amount of savings will never beat a modest return on a disciplined savings habit.
Speaking of where your money goes, how much of it is going to debt? A financial plan isn’t just about growing assets; it’s also about managing what you owe. Paying down high-interest debt is often the highest “return” available to you, guaranteed and tax-free. There’s no investment that can reliably beat paying off a credit card charging you 24%. Getting the debt side of your balance sheet under control is every bit as important as the investment side.
In addition, it’s important to protect what you have. Insurance isn’t exciting, and nobody enjoys paying for it, but a solid plan helps protect against the things that can wipe out years of good decisions in an instant. The right life insurance, disability coverage, and proper liability protection are what keep one bad event from undoing everything you’ve built. I’ve seen families do everything right on the investment side, only to be derailed by a risk they never bothered to cover.
Also, taxes may matter more than returns. It’s not what you make; it’s what you keep. Two people can earn the exact same return and end up in very different places simply based on how their accounts are structured and how their withdrawals are handled. Which accounts you save in, when you take money out, and how you plan around your tax bracket can quietly add up to real money over a lifetime. A good plan is always looking a step ahead on taxes, not just filing them once a year. A tax return is memorializing history; tax planning happens before the end of the year, when you can actually do something that can help minimize your taxes.
Lastly, a real plan looks past your lifetime. Estate planning, beneficiary designations, wills, and trusts make sure that what you’ve built actually ends up where you want it. This is the part everyone knows they should handle, and the part so many people keep putting off. Without it, all the careful investing in the world can end up tangled in probate or landing in the wrong hands.
So while investing is important, it’s only one instrument in the orchestra. Cash flow, insurance, debt, taxes, and estate planning all have to work together, and when they don’t, even a great portfolio can’t make up the difference. A real financial plan looks at the whole picture, not just the part that shows up on a statement. If your “plan” is really just a list of investments, it may be time to sit down with your advisor and build the rest of it.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
