The Power of Planning
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Planning is a powerful tool to help investors succeed and achieve better outcomes. The table below highlights the benefits of planning taken from a study on retirement planning among Americans over age 50. The results show that having and sticking to a plan results in three times the net worth when compared to those who don’t have a plan.
Total net worth across different planning types
Source: Lusardi, Annamaria, and Mitchell, Olivia S., “Financial Literacy and Planning: Implications for Retirement Wellbeing,” May 2011
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.
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.
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 enabled by planning which creates awareness and encourages long-term thinking along with consistent action over time. These practices in turn can help investors avoid many common and costly behavioral bias and mistakes. So, make a plan and stick to it!.