During your first visit with a financial planner, it’s only natural to want to know whether you’re in good shape. But it’s important to consider what financial wellness means to you. Does it mean simply getting a status report on your investments? Or does it mean understanding the overall health of your finances as you prepare for retirement?

At Johnson Brunetti, we’ve seen first-hand the contrast between those who come in well set up and those who lack preparedness. It often correlates with how people see the value of a full financial plan, not just an investment portfolio.

Join Joel Johnson, CFP®, as he explains the key differences between a portfolio and a retirement plan. You’ll also learn how these pieces fit together to best serve your long-term financial goals.

Purpose

Portfolio: A portfolio is a specific mix of investments to grow or preserve your wealth. Typically, portfolios are more inclined for growth as you work, earn, and save for retirement. But in retirement, the goal becomes generating income and preserving your assets. When you’re only focused on your investment mix, however, you’re not looking at the whole financial picture.

Retirement Plan: A retirement plan is a broader strategy focused on your long-term financial goals, encompassing more than just your investments. When building this plan, you must ask yourself what you want to do in retirement. That may be traveling, volunteering, spending time with grandchildren, or helping with their education. These decisions serve as the baseline for crafting a well-rounded plan.

Measurement of Success

Portfolio: The success of a portfolio is largely determined by rate of return. You typically look at how your return compares to a benchmark like the U.S. stock market or a mix of stocks and bonds. When you’re in this scoring system, you’re looking at your measurement of success in a vacuum. Often, it’s more valuable to know whether your portfolio is serving your broader plan.

Retirement Plan: You measure the success of a retirement plan differently. You must consider whether your plan will generate enough income, keep up with the cost of living, leave behind money in the way you want, and more. All these components indicate whether you’re making good progress toward your retirement goals.

Risk Considerations

Portfolio: In a portfolio, you’re only dealing with investments, so the main focus is market risk. The goal is to earn the best return while taking on as little risk as possible. That means growing when markets go up and limiting losses when they go down.

Retirement Plan: A retirement plan deals with many types of risk, including income, health, longevity, and inflation risk. You must make sure you have income for the next 20 to 30 years. And in those 30 years, you may need to double or triple your income just to keep pace with the cost of living. As healthcare expenses rise, another risk is whether you or your spouse will need long-term care and planning for that.

How They’re Connected

Your retirement plan should drive your investment decisions, not the other way around. A common mistake people make is investing first and then later deciding what retirement will look like. Instead, design the retirement plan first, then fit the investments into that plan.

Your portfolio should also adjust accordingly as your broader financial goals change. A strong portfolio without a plan can still fail to meet your objectives.

Some advisors jump straight to investments and suggest changes without understanding the bigger picture. We believe you should use those investments as tools to achieve the overall financial plan. Building the plan first is what truly matters.