Planning is a powerful tool to help investors succeed and achieve better outcomes. A detailed US study on retirement planning amongst Americans over age 50 showed that having and sticking to a plan results in three times the net worth compared to those who don’t have a plan.
The study analyzed the following four categories of planning and their impact on net worth:
Source: Lusardi, Annamaria, and Mitchell, Olivia S., “Financial Literacy and Planning: Implications for Retirement Wellbeing,” May 2011
Not surprising, having and sticking to a plan generates the best outcome. What may be surprising is the magnitude of the impact of planning and that any amount of planning results in two to three times the wealth. Even just calculating the amount of money needed for retirement improves results dramatically. Naturally for more affluent clients the results in $value terms will be even more pronounced.
From a behavioural viewpoint, what is going on?
What can we do?
Having a plan simplifies investing and allows investors to focus on things they can control. Contributions, withdrawals and the amount of time invested are all drivers of long-term wealth. These actions are enhanced by planning which creates awareness and encourages long-term thinking along with consistent action over time. These practices in turn can help investors avoid the many common and costly behavioral biases and mistakes. So, make a plan and stick to it!
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