By Samantha Compton, SWSM Resident Financial Advisor

At times, those who know I am a Financial Advisor but may not yet be a client ask me to give them investment advice.  I find that to be an interesting request, and it often exposes a pre-existing belief system that a person holds about investing in general.  Many think there is some “hot stock tip” or “magic mutual fund” that will help their account do better than everyone else’s.  Even if I knew one of these mystical tips or magical mutual funds, I would STILL give the same response:  What is the PURPOSE of the money you are investing?  Should simply “the highest return” be the only objective?

Over the last three months, we’ve been learning about the #1 Principle of Financial Planning:  Financial security comes from having a plan.  This initial principle is so important because it will guide every financial decision that is made after it is in place.

This month I will be introducing Principles #2 and #3 of the 5 Principles of Financial Planning.

Although they relate to each other, they each have their specific guidelines.

Principle #2:  No investment decisions outside the context of the plan

Principle #3:  The plan determines the products

Why are these two principles so important?

I would venture to say that they can make all the difference in successfully reaching your future financial goals.

Principle #2 means just what it says.  Do not make ANY investment decisions without having and referencing a comprehensive financial plan.  Should you contribute more to your 401(k)?  Should you take Social Security early, at your full retirement age, or wait until age 70?  Should you take a survivor option when selecting your pension income option?  If so, what percentage of survivor benefit? These are just a few examples of decisions many people make without referencing their overall financial plan.  They end up evaluating each of those decisions independently, without awareness of how those decisions may affect the REST of their finances.  I have seen that what appears to be the most advantageous decision independently ends up being detrimental to the bigger picture.

Principle #3 is beneficial when trying to make decisions about particular investments or products.  Should you buy gold?  Should you invest in a CD?  Should you keep your money in cash?  Should you buy an annuity?  Should you buy a particular stock, mutual fund, or ETF?  For these decisions, again, you’ll want to reference your comprehensive financial plan and determine what the purpose of that investment is.   Is the goal to provide long-term growth?  Is the purpose to create income in the next five years?  Is the purpose to try to get a little growth before the cash is needed for a particular goal in 2-3 years?  All of these situations are very real considerations that should determine the product that is used.  The goal or purpose of the money will be outlined in a well-written plan and will either illuminate or eliminate the investment products you are considering.

It is very easy to feel overwhelmed by all of the information, opinions, and recommendations out there in the financial world.   I hope you are learning or reminded that you can have confidence in determining what is suitable for you and what fits into your long-term financial plan.  By incorporating these principles into your life, your way forward can become more apparent.

Next month, I’ll provide a few more examples of Financial Principles #2 and #3 in action.  I’ll also be introducing a basic framework through which to view your finances.  This should be very helpful in determining the purpose of your investments and in creating your long-term financial plan.

Action Step:

Take a look at each financial product you own and see if you can name the PURPOSE or role that financial product has in your overall financial plan. What is its job?  Is that product doing its job? Is there another product that could do the job more efficiently?   If you are unsure, it may mean that you need to re-assess your overall financial plan!

Samantha Compton is an SWSM contributor and financial advisor. She is also a Senior Financial Advisor & Women’s Investment Specialist with an SEC Registered Investment Advisor Firm in the Kansas City, MO area. She places a high value on financial education and believes it is essential for creating and sticking to a well-written financial plan!


This article is written to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Wise Wealth, LLC and its representatives do not give legal or tax advice. Consult your tax advisor or attorney for advice specific to your circumstances.