Why Your Plan is More Important Than Your Investments
The difference between financial planning and financial vehicles
A while back I was a guest on an investment radio program in San Francisco. During the show, a man called asking for advice on investing.
“I’m 42 years old. I have a good job, but I don’t have any money. My mother has a house with almost $700,000 in equity. She said I could borrow some of that to begin investing. What should I invest in? Stocks or real estate?”
“Do you have a plan?” I asked.
“I don’t need one,” he said. “I just want you to tell me what to invest in. I have the money, and I’m ready to go! I just need to know what market you think is best.”
“If you’re 42 and have a good job,” I said, “Why do you have no money? If you lose you mother’s equity money, can she continue to afford the house with the added debt? And if you lose your job or the market crashes, can you afford to live at the current lifestyle you have?”
“That’s none of your business,” he said. “You don’t need to dig into my personal life. All I want is investment advice, not personal advice.”
Investment advice is personal advice
One of the most important things rich dad ever taught me was that investing is a plan, not a product or a procedure. He also said, “Investing is a very personal plan.” So, he believed that all investment advice also required personal advice.
Rich dad often compared investment products to cars. The reason why there are so many cars is because different people have different needs. For instance, a single person might not need a nine-passenger van, but a family with five kids might. A farmer would rather have a truck than a sports car.
“That is why investment products are called investment vehicles,” said rich dad. “They get you from point A to point B, from where you are financially to where you want to be.”
For each person, the plan will be different, depending on various personal goals, details, and realities. That is why it’s important to have a personal plan, and why, if you need advice, you need an advisor who understands your personal situation.
It takes more than one vehicle
Rich dad also pointed out that a big trip often takes more than one vehicle. For instance, if you are travelling from Hawaii to New York City, you need to take either a boat or a plane. This is because there is a big ocean between the islands and the mainland.
Once you reach land, you can either take a bike, walk, rent a car, take the train, or bus into the city. One is not necessarily better than the other. It depends on your plan. If you have time and want to take things in, then walking or riding a bike would be a good choice. If you have to make a deadline for a meeting, you would probably want a car or take the train.
Likewise, depending on your objectives, it may take a number of different vehicles to achieve your financial plan.
The vehicle is not the plan
Most people focus on investments vehicles as if they were the plan. But imagine going to a ticket counter and asking for a plane ticket but not knowing where you wanted to go. It wouldn’t be very productive—and it would be costly.
That’s how most people invest. They look for the vehicle like stocks, bonds, mutual funds, real estate, and focus on those rather than on their investment plan. They should instead make a plan and then choose the right vehicles to achieve that plan.
Don’t fall in love with your vehicle
This is also why rich dad cautioned against falling in love with your vehicle. On most trips, he pointed out you don’t own your vehicles; you simply use them for the time needed. For instance, you don’t own the plane you use to get from point A to point B. And you don’t own the cars you rent or the train you purchased a ticket for. They are useful for a time and purpose, but not for everything.
Many people fall in love with their investment vehicle. They think that stocks or real estate are the best way to invest and the only way to be successful. Again, this is a focus on a vehicle rather than a plan. Fall in love with your plan and use whatever vehicles are necessary to accomplish it.
What’s your plan?
So, do you have a plan? What vehicles will you need to meet that plan? If you’re not sure of the answer to those questions, a great place to start your plan is by increasing your financial intelligence through financial education. Attend a workshop, or if you’re ready, get a coach to help you plan. And as always, there’s no better day to begin your financial journey than today.