Nearly every first conversation I have starts with a product. Which fund. Which scheme. Is this one good. I understand why. Products are what gets advertised, discussed and compared. But in twelve years I've come to think the question itself is usually the wrong one, and answering it directly often does the person a disservice.
Here's the difference as I see it, and why it matters more than it sounds.
What a product is
A product is something you can buy. A scheme, a deposit, a bond, a savings scheme at the post office. It has a name, a set of features and a price.
Products are necessary. Nobody invests without using one. But a product on its own tells you nothing about whether it is right for you, because it knows nothing about you.
That's the point people miss. The same product can be the perfect choice for one household and a mistake for the next one down the street.
What a plan is
A plan is a set of decisions about your own money. What it's for. When each part is needed. How much can be set aside each month without breaking anything. What happens if something goes wrong.
None of that involves a product. And once it's decided, the products mostly choose themselves, because the plan has already narrowed the field. Money for next year goes somewhere stable. Money for fifteen years away can take equity. The buffer sits somewhere reachable. Our page on asset allocation is essentially the method for this.
Most households I meet have products. Very few have a plan.
Why people start with the product
Partly because it's what everybody else talks about. Nobody at a family dinner says "I've worked out my dates and my buffer". They say which fund did well.
Partly because it feels like progress. Choosing a scheme is a decision you can complete in an afternoon. Working out what your money is actually for takes a conversation you may not have had with yourself, or with your spouse.
And partly because the industry sells products. That's what gets marketed, and our post on why we never name a fund explains why we've chosen not to do that here.
What happens when you skip the plan
I see the same pattern repeatedly.
Somebody buys a good product for the wrong money. A sensible equity scheme holding money needed in eighteen months. A deposit holding money meant for retirement twenty years away. Six schemes bought one at a time, each reasonable on its own, together adding up to something nobody designed.
I've seen all three. More than once. Sometimes in the same family, in the same month, bought by people who were being careful in every way they knew how to be careful except the one that would have mattered most.
None of those products were bad. The absence of a plan is what made them wrong. Our post on the regrets clients actually have makes the same point from the other end.
The five questions that make a plan
It doesn't need to be a document. It needs answers to five things.
- What is each pot of money for? A house, a child, retirement, just "savings".
- When is each one needed? Roughly. A year is fine.
- How much can go aside each month without failing in a bad month?
- Is there a buffer for things nobody planned?
- Who else knows what exists?
Answer those and you have a plan. Everything else is choosing products to fit it.
What a missing plan looks like on paper
When somebody brings me a consolidated statement for the first time, I can usually tell within a minute whether a plan exists behind it.
Without one, the statement reads like a diary. A scheme bought the year a colleague mentioned it. Another bought after a strong run. A third from a bank visit. A small SIP started for a child and never raised. Each line has a story, and none of the stories connect.
With one, the statement reads more like a list of jobs. This holds the buffer. This is for the house. This is retirement. The lines may be fewer, they're often less exciting, and every one of them has a reason the person can say out loud.
The second kind of statement isn't better because the schemes are better. Often they're the same schemes. It's better because somebody decided what each one was for before buying it. Our page on the consolidated account statement explains how to pull yours.
Couples usually have two half-plans
This comes up often enough to mention separately.
One spouse has a clear idea of what the money is for. The other has a different, equally clear idea. Neither has said it aloud, so the household is running two plans that quietly contradict each other. One is saving for a bigger house. The other assumes the money is for stopping work early.
Neither plan is wrong. But the products bought under one will be wrong for the other. The five questions below are worth answering together, at the same table, even if it takes an evening.
What I do when somebody asks for a product
I usually ask one question back: what is this money for?
It isn't evasion. It's the whole job. The answer changes everything. If it's for a daughter's education in twelve years, we're having one conversation. If it's for a car next summer, we're having a completely different one, and the product they walked in asking about may not appear in it at all.
Sometimes the answer is vague. "Just savings." That's fine, and it's the most honest answer many people can give on a first visit. Then the next question is whether that money could be needed suddenly, or whether it can sit untouched for years. Those two answers lead to very different places, and the person usually knows which one is true once somebody asks.
Occasionally people find this frustrating. They wanted a name and got a question. But I'd rather frustrate somebody for ten minutes than sell them something that fits the wrong goal.
Plans change, and that's fine
A plan isn't permanent. It's a set of decisions based on what you know now.
A child arrives. A job changes. A parent needs support. The plan gets revisited, the dates shift, and some money moves. That's what it's for. Our page on portfolio rebalancing covers the mechanical side.
What doesn't make sense is changing the plan because a product did well or badly last quarter. That's letting the product run the plan, which is the problem we started with.
A plan protects you from good products too
This sounds odd, so let me explain it.
A great deal of the pressure on investors comes from genuinely good products being presented at the wrong moment. A new fund offer launching after a strong run. A category everybody is discussing. A bank manager with a sensible scheme and a target.
Without a plan, each of those is a decision to make from scratch, and some of them will be made badly. With one, most of them answer themselves: does this fit a pot I already have, at the right date? Usually the answer is no, and you can say so without having to argue about whether the product is any good.
Our post on when your bank offers you an investment is essentially this principle applied to one common situation.
The unglamorous truth
The plan is where most of the value is, and it is the least interesting part to talk about.
Nobody posts about having matched their money to their dates. Nobody's relative boasts about a well-sized buffer. The products get the attention and the plan does the work.
If you have products but no plan, that's the most common situation I see and it's easy to fix. An hour with the five questions above will tell you whether what you already hold makes sense. Myfolios is an AMFI-registered mutual fund distributor (ARN-145870) working from Indore since 2014, and our page on how to start investing sets out the order we'd suggest.
