The Power of Having and Implementing a Plan

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:

  • Those who had no plan.
  • Those who thought about planning by calculating how much they needed for retirement.
  • Those that had a plan for how to save the money needed.
  • Those that had a plan and stuck to it.

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?

  1. We are naturally averse to acting in order to avoid loss, punctuated by our two-for-one loss aversion, where we feel twice as bad about a loss as an equivalent gain. We don’t want to make a mistake and suffer the associated regret. Loss and regret are powerful emotional drivers.
  2. We are prone to emotional overreaction when under stress because our cognitive functions are diminished by our emotions. This can lead to poor decisions at precisely the wrong time and often results in costly mistakes.
  3. Building wealth requires delayed gratification, where current benefits are traded off for long-term benefits. We are unlikely to engage in this trade off unless we have a conscious process that identifies future value and a method for obtaining it.

What can we do?

  1. Develop a goals-based plan as a financial roadmap to help Illustrate the value of following the plan.
  2. Be realistic, review and update the plan regularly as life and other external circumstances change.
  3. Focus on what you can control with predetermined courses of action to build discipline.
  4. Learn to understand that progress toward goals is often more important than short-term investment performance.
  5. Work with a financial adviser who can provide valuable perspective, guidance and discipline to help you stick to the plan.


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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