Graphic Displays used in Financial Planning
In Week 10 we read about graphic displays and their importance in research and especially used in trying to communicating data from various research studies. Graphic displays can help paint a picture to depict numbers in a way that words and numerical values simply can’t always do. Financial planning takes full advantage of using many of these graphic tools to help convert data into pictures for clients. Through reports and other research, financial planners use graphic displays on a daily basis.
Four various forms of graphic displays used in financial planning are pie charts, simple column graphs, a combination between area and line charts, and column deviation graphs.
—Pie charts are typically used in our appointments to illustrate how their portfolio is allocated. Since we diversify investments over seven major asset classes it helps them see that there is still a large portion of stocks and bonds, in addition to the other classes.
—Simple Column Graphs are used in our performance reports and show their individual returns (net contributions and fees) for the current quarter, past year, past three years, and since inception. This helps show the increase investments have made over certain time periods.
—Area and Line Charts are used in quarterly performance reports as well. Normally this is an area chart showing what investments have done over time and a line to show what a client has contributed over time. This is easier to show graphically but essentially this typically shows a gap where the returns go much above the contributions will help show the time value money has over time and that dips in the market typically rebound returns higher than before the dip.
—Column Deviation Graphs are used to help show investors deviation. We typically use these to show performance of investments on an annual basis and then track them over multiple years. By being able to illustrate the negative and positive returns helps compare time periods, especially for a sector such as emerging markets because it can be very high one year and very low the next.
Graphic displays help financial planners show clients how investments have performed, how they are allocated, what their gains are, and how much the deviations of returns, whether positive or negative from year to year. Graphics help illustrate various numbers in financial planning through a picture rather than words or numbers and helps give clients a better perspective.
As technology has improved over the years it has made financial planners jobs easier in the fact that there are ways to generate reports and using graphic displays can help clients gain a better understanding of their investments. As Corning (1997) mentioned communication technology is more valuable than advice, especially when the advice is valuable and the technology enables you to better create and distribute it.”
Corning, M. P. (1997). Virtual planning networks. Journal of Financial Planning, 10(1), 75-81.