Stienemarié Bonsma-Potgieter, CFP® – Financial Planner

When it comes to investing, the terms “product,” “portfolio,” and “plan” are often used interchangeably. They are however not the same thing. Understanding the differences between these concepts can help you make better decisions about your financial future.

What Is an Investment Product?

An investment product is a vehicle or tool that allows you to invest your money. Examples include retirement annuities, unit trusts (local or offshore), tax-free savings accounts or endowment policies. Each product has its own structure, tax benefits, and rules. For instance, a tax-free savings account allows you to grow your investments without paying tax on the returns, while a retirement annuity is specifically designed to help you save for retirement.

I often hear people ask which product will give them the best return. It’s important to remember that a product is just the container for your money, all with a different set of rules when it comes to accessibility and taxes of course. What’s inside the container — the actual underlying investments and exposure — is what really determines how your money grows over time.

An investment product cannot be blamed for bad performance. In all likelihood the bad performance is due to one or a combination of the following factors: high investments costs, poor underlying investment decisions or bad behavioral decisions like panicking when markets are low and switching in and out of the market.

What Is a Portfolio?

A portfolio refers to the mix of underlying products held as well as the asset allocation mix both locally and globally. These could include shares, bonds, property or cash. The goal of a portfolio is to balance risk and return based on your financial goals and risk tolerance.

For example, if you invest in a unit trust, your portfolio might include a combination of local and international shares, government bonds, and other assets. The specific mix will depend on your objectives — whether you want to grow your wealth, preserve capital, or generate income.

A well-constructed portfolio is diversified, meaning it spreads your money across different types of investments to reduce risk. But even the best portfolio won’t achieve its purpose without a solid plan behind it.

What Is a Financial Plan?

A financial plan is your long-term roadmap to achieving your goals. It considers your current financial situation, your future objectives and the steps needed to get there. Your plan will guide decisions about which products and portfolios are right for you.

For example, if your goal is to save for your child’s education, your plan might include investing in a tax-free savings account or unit trust investment with a portfolio designed for medium-term growth. If you’re working towards retirement, your plan might focus on firstly growing and then preserving capital and generating income through a retirement annuity.

A plan also takes into account other factors, like your budget, tax obligations, and life events. It’s not a one-size-fits-all solution; it’s tailored to your unique circumstances.

Why the Distinction Matters

Many people mistakenly believe that buying an investment product means they have a portfolio or that having a portfolio is the same as having a plan. This confusion can lead to poor financial decisions.

Without a plan, you might choose the wrong product or portfolio for your needs. Without a clear portfolio, your product might underperform or expose you to unnecessary risks. And without the right product, even the best portfolio and plan can fall short of your goals.

Bringing It All Together

To achieve your financial goals, you need all three elements:

1. A Product: The right vehicle for your money.
2. A Portfolio: A diversified mix of investments aligned with your goals.
3. A Plan: A comprehensive strategy to guide your decisions.

Working with a qualified financial planner can help you align these elements and give you confidence in your financial future. Remember, a product is not a portfolio, and a portfolio is not a plan — but together, they create the foundation for success.

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