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Investing for beginners

Financial planning and investing are two topics that can easily be confused for one another. Learn the differences and where investing ends and financial planning begins.

Tags: Investing, Investments, Planning
Published: January 16, 2019

When researching strategies for your future, you might see the term “investing” alongside “financial planning” and ask yourself, “What’s the difference?”

Here’s a breakdown of what these two terms mean and how they’re linked.

What is financial planning?

In general, financial planning is a cohesive approach to managing your finances. It aims to:

  • Evaluate your current financial situation
  • Map your desired future situation
  • Plan the routes you can take to potentially reach that end

Financial plans are created by taking into account an individual’s assets, debts, family needs, goals and anything else that might affect financial decisions. This makes a financial plan unique to each person.

A good plan lays out specific budgeting, retirement, tax, estate, insurance and investment plans, with the intent of helping you make smart financial decisions in pursuit of your short- and long-term goals. Your financial plan should also evolve as you encounter any major life changes and your goals or priorities shift. For example, maybe you decide later in life you would like to start your own business. In that case, your financial plan would likely need to shift to account for that change.

What is investing?

Essentially, investing is spending money with the goal of making a profit. Investing may potentially help you grow your wealth and pursue short- and long-term goals like paying for your child’s education and funding retirement.

Even if you don’t know much about investing, you might already be an investor. Employer-sponsored retirement plans like 401(k)s are comprised of a portfolio of investments. The most common investments offered in 401(k) plans are mutual funds. These are collective pools of money that the fund managers invest in various securities for investors holding shares (or “units”) in the fund.

Other 401(k) plans let you buy and sell investment options of your choosing. Investment options are categorized into asset classes, which include things like stocks, bonds, real estate, precious metals and currencies.

Rather than just throw money into the market, you may want to consider a cohesive investment strategy. An investment strategy outlines how you diversify your money amongst various asset classes. Strategies can vary based on your goals and risk tolerance, such as generating an income to live off of during retirement.

Investing vs. financial planning

Ultimately, though you can apply similar rigor to both, the scope of financial planning is wider than investment planning. While you don’t need a financial plan to start investing, a comprehensive financial plan will almost certainly include some kind of investment plan and will consider the relationship between your investing and say, your retirement plan.

If you aren’t sure where to start, a financial professional – depending on their credentials and expertise – may be able to help you develop a financial plan that includes specific tax, insurance, retirement and investing strategies, and detail how they can and will interact with each other. They may also be able to help you identify goals to work toward.

For a fresh take, learn how fantasy football can
give you a new perspective on investing your money, or take a look at our approach to investing.