Portfolio management vs. financial planning

When investors are considering hiring us to manage their portfolios through Successful Investor Wealth Management Inc., they sometimes ask about the difference between portfolio management and financial planning.

It’s a good question. Portfolio management involves choosing investments for your portfolio. These selections are based on your investment objectives, risk tolerance, age and personal circumstances. Financial planning, on the other hand, focuses on arranging your affairs to cut your taxes. This can be done through income splitting and various other means.

Financial planners can complement your portfolio management by helping you estimate how much you need to save, or the investment return you’ll need, to achieve a particular level of income at some future point.

Use caution when selecting a financial planner

Many mutual fund and insurance salespeople offer their clients free, but often rudimentary financial planning.

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The quality of this financial planning varies widely. To get top-quality help, you may need to consult an accountant or a financial planner. When you do this, it is important to select a financial planner who only generates income through fees. This way, you avoid conflicts of interest.

Financial-planning fees can range from several hundred to several thousand dollars.

Start with your tax preparer

Your tax preparer may be able to provide you with financial planning services. They may also be able to refer you to somebody who can.

If you do your own taxes, you can probably do most, if not all, of your own financial planning. Popular Canadian tax software programs include QuickTax from Intuit (http://quicktax.intuit.ca) and Cantax (http://www.cantax.com). Intuit also offers Quicken Home & Business 2009 (http://quicken.intuit.ca). This program lets you monitor your personal finances, as well as track the value of your investments and other assets.

It also helps to do some reading. There is no single book or web site that we can recommend on the subject. That’s mainly because individual circumstances vary widely, laws frequently change and books quickly go out of date. You’ll need to browse through several to find one or more that works for you.

The best way to choose a book on this (or any) topic is to use an old encyclopedia buyer’s trick. See what the book says about a question to which you know the answer, and judge the book accordingly.

If you are looking for sound portfolio management, you may be a good candidate for our Successful Investor Wealth Management service. Click here to learn more.

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