The Difference Between Investment Management and Financial Planning

Finance has a reputation for being complicated and confusing. And like many industries, finance has its own vocabulary, acronyms, strategies, and dialect. It can be overwhelming if you don't live in it every day.

There are two terms — investment management and financial planning — you've probably heard that are sometimes used interchangeably but are actually different. It's one of the areas of question and confusion our firm hears most from clients.

Let's dive into some of the similarities and differences between the two disciplines.

What Is Investment Management?

Investment management primarily focuses on managing investment portfolios to achieve financial goals. It involves selecting appropriate investment vehicles, like stocks, bonds, mutual funds, and alternative investments, and making decisions regarding asset allocation, diversification, and risk management.

What Is Financial Planning?

Financial planning is a broader process that encompasses various aspects of personal finance beyond investments. It involves gathering pertinent information and analyzing an individual's or household's overall financial situation, including — but not necessarily limited to — expenses, assets, liabilities, taxes, insurance needs, retirement planning, and estate planning.

Financial planning aims to create a comprehensive roadmap that aligns our financial choices with our goals and priorities.

A Comparison: Investment Management vs Financial Planning

The two disciplines definitely overlap, but there are also material differences. So often, the advertisements and messaging you see online or on TV relate to investment management rather than financial planning.

• Investment management, at its core, is about managing investments.
• Financial planning, at its core, is about managing investor behavior and strategies.

• Investment management is about measuring your portfolio by comparing the results to an index or a benchmark.
• In financial planning, you measure your progress against the only thing that really matters in the end, which is your goals.

• Investment management is about allowing your money to work for you to help you reach your financial dreams.
• Financial planning is about helping you define your goals, dreams, desires, and fears.

• Investment management takes into account the market and the economy.
• In financial planning, you are developing strategies based on your economy.

• In investment management, you are focused on creating a portfolio that can survive considerable market volatility.
• In financial planning, you create strategies to help you survive significant life volatility.

• Investment management is where you make decisions about where to invest your money.
• In financial planning, you determine how and when to invest your money.

• Investment management helps you understand how much you need to earn on your investments to meet your future spending needs.
• In financial planning, you figure out how much you need to save to meet your future spending needs.

• Investment management is about reducing anxiety that can come during market volatility.
• In financial planning, you work to reduce the anxiety that comes from making big life decisions with your money.

• Investment management involves growing your money so that someday you can become wealthy.
• In financial planning, you determine what a wealthy life means for you and your family.

The Bottom Line

While investment management primarily focuses on managing investment portfolios, financial planning takes a broader approach, addressing all aspects of an individual's or household's financial life to help them achieve their financial goals and objectives. While distinct, both disciplines are often intertwined, with investment management being a vital component of the larger-scope financial planning process.

Spaugh Dameron Tenny is here to support you as you work to achieve your financial planning goals. Connect with one of our financial planners to learn about our financial planning process and investment philosophy.

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