In a perfect world, both halves of a couple share the same investment goals and agree on the best way to try to reach them. It doesn’t always work that way, though; disagreements about money are often a source of friction between couples. You may be risk averse, while your spouse may be comfortable investing more aggressively–or vice versa. How can you bridge that gap?
First, define your goals
Making good investment decisions is difficult if you don’t know what you’re investing for. Make sure you’re on the same page–or at least reading from the same book– when it comes to financial goal-setting. Knowing where you’re headed is the first step toward developing a road map for dealing jointly with investments.
In some cases, you may have the same goals, but put a different priority on each one or have two different timeframes for a specific goal. For example, your spouse may want to retire as soon as possible, while you’re anxious to accept a new job that means advancement in your career, even if it means staying put or moving later.
Coming to a general agreement on what your priorities are and roughly when you hope to achieve each one can greatly simplify the process of deciding how to invest.
Make sure the game plan is clear
Making sure you both know how and (equally important) why your money is invested in a certain way can help minimize marital blowback if investment choices don’t work out as anticipated. Second-guessing rarely improves any relationship. Understanding the risks and rewards upfront may help moderate the impulse to say, “I told you so” later.
Investing doesn’t have to be either/or. A diversified portfolio should have a place for both conservative and more aggressive investments. Though diversification and asset allocation can’t guarantee a profit or protect against a loss, there are ways to manage the type and level of risk you face–including the risks involved in bickering with your spouse.
It takes two
Aside from attempting to minimize marital strife, there’s another good reason to make sure you both understand how your money is invested and why. If only one person makes all the decisions–even if that person is the more experienced investor– what if something were to happen to that individual? The other spouse might have to make decisions at a very vulnerable time–decisions that could have long-term consequences.
If you’re the less experienced investor, take the responsibility for making sure you have at least a basic understanding of how your resources are invested. If you’re suddenly the one responsible for all decisions, you should at least know enough to protect yourself from fraud and/or work effectively with a financial professional to manage your money.
If you’re the more conservative investor …
If you’re unfamiliar with a specific investment, research it. Though past performance is no guarantee of future returns, understanding how an investmenttypicallyhasbehavedinthepastorhowitcomparestoother investment possibilities could give you a better perspective on why your spouse is interested init.
Consider a compromise position. Look for investments that are less aggressive than what your spouse is proposing but that still push you out of your comfort zone. . For example, if you don’t want to invest a large amount in a single stock, a mutual fund or exchange-traded fund (ETF) that invests in that sector might be a way to compromise. (Before investing in a mutual fund or ETF, carefully consider its investment objective, risks, charges, and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.) Or you could compromise by making a small investment, watching for an agreed-upon length of time to see how it performs, and then deciding whether to invest more.
Finally, there may be ways to offset, reduce, or manage the risk involved in a particular investment. Some investments benefit from circumstances that hurt others; for example, a natural disaster that cuts the profits of insurance companies could be beneficial for companies that are hired to rebuild in that area. Many investors try to hedge the risks involved in one investment by purchasing another with very different risks. However, remember that even though hedging could potentially reduce your overall level of risk, doing so probablywouldalsoreduceanyreturnyoumightearniftheotherinvestmentis profitable.
If you’re the more aggressive investor …
Listen respectfully to your spouse’s concerns. Additional information may increase your spouse’s comfort level, but you won’t know what’s needed if you automaticallydismissanyobjections.Ifyoudon’thavethepatiencetoeducate your spouse, a third party who isn’t emotionally involved might be better at explaining your point ofview.
Resist the temptation to conceal the potential pitfalls of an investment about which you’re enthusiastic. Doing so could make future joint decisions more difficult if your credibility suffersbecauseofaloss.Aswithmostmaritalissues,transparencyandtrust arekey.
Embrace your spouse’s cautiousness. A spouse who’s more cautious than you are may help you remember to assess the risks involved or keep trading costs down by reducing the churn in your portfolio.
Remember that you can make changes in your portfolio gradually. You might beabletohelpyourspousegetmorecomfortablewithtakingonadditionalrisk byspreadingtheinvestmentoutovertimeratherthaninvestingalumpsum.
And if you’re an impulsive investor, try not to act until you can consult your partner–or be prepared to face the consequences.
What if you still can’t agree?
You could consider investing a certain percentage of your combined resources aggressively, an equal percentage conservatively, and a third percentage in a middle- ground choice. This would give each of you equal input and control of the decision- making process, even if one has a larger balance in his or her individual account.
Another approach is to use separate asset allocations to balance competing interests. If you both have workplace retirement plans, the risk taker could invest the largest portion of his or her plan in an aggressive choice and put a smaller portion in an option with which a spouse is comfortable. The conservative partner would invest the bulk of his or her money in a relatively conservative choice and put a smaller piece in a more aggressive selection on which you both agree.
Or you could divide responsibility for specific goals. For example, the more conservative half could be responsible for the money that’s being saved for a house down payment in five years. The other partner could take charge of longer-term goals that may benefit from taking greater risk in pursuit of potentially higher returns. You also could consider setting a predetermined limit on how much the risk taker can put into riskier investments.
Finally, a neutral third party with some expertise and a dispassionate view of the situation may be able to help work through differences.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. PSECU has contracted with CFS to make non-deposit investment products and services available to credit union members.
CFS and its Financial Advisors do not provide tax advice. Please consult a qualified professional prior to making tax related decisions.