Is financial investing or

financial planning

more important?


Both are important, but many will only focus on where to invest their funds without understanding whether or not they expect to have sufficient funds for retirement.  Consider the following:

  • assume a couple - two 55 year olds, neither of whom have a defined benefit pension plan, has $100,000 in savings, all in RRSPs, and then
  • assume this couple contributes $8,000 per year to their RRSPs, and finally
  • assume the couple has a choice to invest in relatively safe GICs and/or bonds, with an expected return of 3%, or higher risk mutual or equity funds with much greater volatility but a higher assumed return of say 7%

What should this couple do, being 10 years from planned retirement - invest in the safer guarantees or the riskier equity investments?  What would you do?I suggest if this is all the couple knows it may not really matter.  Without knowing how much they expect to need for their desired retirement lifestyle, they don’t know whether either investment option is expected to have them reach their goal.

Assume it was forecasted the couple will need at age 65 their OAS, CPP and $300,000 of RRSP assets to expect to maintain their desired lifestyle throughout retirement.Based on these assumptions and ignoring compounding for simplicity, how much is this couple expected to have at age 65?The safer guaranteed investment option

$100,000       current assets, plus

    80,000       10 years of $8,000 savings per year

    30,000       10 years of $3,000 inv. income per yr

                        ($100,000 x 3% x 10 years)

$210,000       forecasted assets at age 65

Note this is less than the $300,000 forecasted as needed.

The more aggressive equity investment option $100,000      current assets, plus

    80,000      10 years of $8,000 savings per year

    70,000      10 years of $7,000 inv. income per yr

                      ($100,000 x 7% x 10 years)

$250,000      forecasted assets at age 65

Note this is still less than the $300,000 forecasted as needed.




The point is that in neither case is this couple expected to have enough saved to retire as they wish.  In order to do so they need to plan to increase their savings by another $5,000 per year through reduced expenses, or an increase their revenue, either other employment or delaying their retirement, or a combination of both.  A financial / retirement assessment, including a review of expenses will provide the framework for adjusting in order ot achieve one's goals. 

Yes where one invests is important, but without first having some idea of what you need for retirement, agonizing over where to invest your funds may never achieve your goals.