The core of financial planning includes defining the member's goals and objectives.  The answer to this is found through a combination of discussion and question and answers between the Certified Financial Planner (CFP) and yourself.

Your goal may be simply stated "to retire early" or "to make my money grow" which your CFP will then define combined with a variety of constraints such as time horizon, liquidity, tax concerns, legal requirements and personal preferences to which both you and your CFP can agree to.

Time Horizon

The first and perhaps most important question is to define the time horizon of your goals - are they short term or long term?

Liquidity Needs

Liquidity relates to time horizon - do you need a sum of money for a near-term or short term goal?  If so, funds need to be invested so they can be sold quickly should the funds be needed.

Income vs. Growth

This question may relate to where you are in your current life cycle.  Is your goals to save for the future and increase the overall growth of your investment or are you looking for an investment to provide an income now?

Goal Achievement

The overwhelming concern for many people is "Will I have enough?"  This question is asked by people who are saving for retirement and by those who are drawing an income from their investments.  Your CFP will take into account six factors when determining the answer:

1. The number of years left until retirement
2. The annual income required at retirement
3. The amount of retirement savings already in place
4. The amount of money the client can save each year
5. Inflation rate between now and proposed inflation rate during retirement
6. Expected return on the client's savings over the years

Tax Planning

Tax planning plays a diminished role in mapping out planning strategies; however, tax consequences can not be ignored.  Nor can it be ignored that taxes are an emotional issue for many people and personal preferences may sometimes play a role in decision making and planning regarding investment and tax implications.

Primary and Secondary Objectives

People rarely have only one financial objective to meet.  For example, young people often think about retirement in the distance but have their goals set on education for their children or a home.  Older people might be concerned about their income today and tomorrow as well as the well-being of their heirs.

Your CFP must be able to distinguish between these many goals and establish a primary and secondary objective of the plan.

Tolerance for Risk

Your CFP's recommendations must also take into account your aversion or tolerance for risk.  People may be eager to "make their money grow", but at what risk are they willing to accept?

Establishing the tolerance for risk requires an understanding of the relationship of risk and returns.  The risk inherent in a portfolio is determined by the combination of assets; at the same time this combination will determine the returns.  The two are tied.  If you decide that a particular level of return must be achieved, you must accept the risk that will accompany that return.  Conversely, if you decide that you can not tolerate more than a certain amount of risk, you must be satisfied with the returns that will result from that risk level.

"Professional Financial Planning", Canadian Securities Institute, August 1999