Behavioral Finance and Investor Types: Managing Behavior to Make Better Investment Decisions

Chapter 14

Financial Planning: A Crucial Step

Financial planning is not the same thing as asset allocation, which we reviewed in the last chapter. Advising clients in financial planning is distinctly different from investment advisory. Financial planning is just as it sounds—a plan or a roadmap to reach numerous financial goals. Asset allocation is the implementation of one part of the plan. Financial planning may mean different things to different people. For one person, it can mean providing for a comfortable retirement, while for another it may mean saving money for a college education for a child or grandchild. Financial planning can even extend to insurance analysis and planning choices, career (job) decisions, or may simply be used to plan a budget. Everyone should have some kind of financial plan. As the old saying goes, “He who fails to plan, plans to fail.”

Fortunately, there are resources available to help one make and execute a plan. Some of these resources are free while others require a monetary investment. I will discuss some resources for those who wish to do it themselves, but the focus of this chapter, including the steps in the financial planning process to be detailed later, will be from the viewpoint of those working with financial advisors. Hiring a financial planner to aid in the development of a financial plan is not necessary, but it is certainly recommended. There are free online resources such as fpanet.org, books like this one, software programs, and ...