If you have investment accounts, you’re probably familiar with the stream of statements that arrive each quarter. Your 401(k) or 403-B shows one return. Your IRA shows another. Your taxable account shows something different. You glance at the numbers, maybe feel good or worried depending on whether they’re up or down, and then file them away.
But here’s the question most investors can’t answer: What do these numbers actually mean for your life?
The Gap Most Firms Leave
If you have a financial plan, it isn’t just a document you looked at years ago and forgot about. It’s a roadmap built on specific assumptions about how you envision your life to take shape. One key component of that road map is knowing how your investments will perform over time. Maybe your plan assumes a 7% average return to fund your retirement at 62. Or a 6% return to maintain your lifestyle for thirty years.
But without connecting your actual investment performance to your plan assumptions, you’re essentially navigating in the dark. You might be ahead of schedule. You might be falling behind. You simply don’t know.
Surprisingly, this disconnect may be more common than you think. Many advisory firms may only provide investment management or just financial planning. This makes it difficult to see the connection between the two. Other advisory firms, even well-established ones that provide financial planning and investment management, may not provide the level of integrated reporting needed to connect these dots. Some don’t provide any reporting at all. We believe that’s a gap worth filling.
Why We Do This Differently
For our Cash Flow Wealth Management clients, we produce a quarterly consolidated investment report that pulls together all their accounts (including any held-away accounts) to get a solid read on the overall asset allocation and rate of return for the whole portfolio. Then we compare the actual performance against the assumptions in your financial plan. It may take a few years, given the market’s ups and downs, to dial in a consistent return, but it is comforting to know that your financial plan is on track.
What This Actually Does for You
This quarterly connection provides clarity and confirmation. It keeps your plan a living, breathing document instead of a static plan gathering dust. It is one of the key components to keeping your plan relevant.
Most importantly, it provides peace of mind. Financial anxiety often stems from uncertainty. When you can see how all the pieces fit together, you gain confidence that someone is actively watching whether you’re on course.
The Reality Check
Your investments exist to serve your life goals, not the other way around. Without regularly checking whether your portfolio performance aligns with your plan’s vision, the plan itself becomes theoretical rather than practical.
Most financial advisors are taking the time to make sure the portfolio they are managing for you meets your risk tolerance, which correlates to a stated allocation of your assets. Are they also checking the asset allocation of your other accounts, too? All your accounts combined need to reflect your overall desired asset allocation. To go one step further, it is important to plug your rate of return (that correlates with your asset allocation) into your financial plan. This helps to determine if your plan will work. Tracking the actual performance of your total portfolio helps to connect all the pieces to make sure you are staying on the right path.
What This Looks Like
On an annual basis, when your financial plan gets updated, we review the consolidated report showing all your investment accounts and their rates of return over different time periods. Then we sit down together to discuss what it means:
- Are you tracking ahead of, behind, or in line with your plan’s assumptions?
- Do we need to adjust your plan?
This isn’t about chasing performance or reacting to every market fluctuation. It’s about ensuring the decisions we make with your investments are consistent and serve the strategic goals in your plan.
Connecting the Dots
Financial planning without ongoing performance monitoring is like setting a destination in your GPS without ever checking if you’re still on the right road. Markets change. Life changes. Your plan should adapt to both.
The quarterly reports aren’t just numbers on a page. They’re the bridge between your financial life plan and your investments, the connection that ensures your plan is relevant and provides the cadence necessary to live the life you envision.
That’s one component of our financial life planning process for our clients.
AUTHOR: Alexander Financial Planning, Inc.
This material is distributed by Alexander Financial Planning, Inc. (AFPI) and is for information purposes only. Although information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy. AFPI assumes no liability for the interpretation or use of this information. No portion of this writing should be construed as legal or accounting advice. All rights reserved.