Though Eric Bowlin invests full-time, getting his start in real estate but since in silver, stocks and more, he and his wife still have different ideas of how to invest in a way that’s best for the family.
“My wife is far more conservative than I am when it comes to investing. The way I like to describe it is her choices save us a lot of money while my choices have made us a lot of money,” the founder of IdealREI.com says. “If she was left entirely in charge of the portfolio, it would never lose money but wouldn’t grow much. If I was in charge of it, we’d probably have wild ups and downs.”
So the Bowlins have a checks and balances system: “I have to pitch her the idea and sell it to her. I have to trust that if she is really against it, it probably wouldn’t work out for us,” Bowlin says.
The Bowlins are not alone. Many couples struggle with how to invest their assets in a way that accomplishes their goals and doesn’t keep them awake at night with stress and worry.
[See: 10 Tips for Couples and Young Families to Build Wealth.]
Differing philosophies can actually be a positive in many ways. When one person is more conservative than their mate their portfolio could provide more stability during market downturns. Conversely, during periods of high growth the other’s investments provide the better growth potential, says Matthew J. Ure, retirement management analyst and regional vice president for Anthony Capital in Garden Ridge, Texas.
So experts say successful joint investing is all about communication and compromise. Here’s how to make it work.
Decide your combined goals and exactly what you need to do to get there. Determine the minimum return you need to reach your goals, whatever those may be, says Scott A. Bishop, partner and executive vice president of STA Wealth Management in Houston. There’s not much need to take risk above achieving that return, and that can help you become more comfortable and confident in evaluating market opportunities.
“Once that is done, sometimes it is also helpful to set up an investment discipline that is aligned with each spouses risk appetite,” Bishop says. “With that, I assign portions of the portfolio for each of them to manage … and with my help, we build and implement an investment discipline that they can live with that is aligned with their goals.”
Talk about your risk tolerance. “[Spouses] may express different risk tolerances, but the reality is that most people don’t know their actual risk tolerance,” says Rich Winer, associate vice president of Steel Peak Wealth Management in Woodland Hills, California. Talking about your investment experiences can help you nail it down.
Spouses also tend to have very different experiences with money as they were growing up, which informs their relationship with it now, says Jeff Stoffer, a certified financial advisor at Stoffer Wealth Advisors in San Rafael, California. “Some people have a fear that there won’t be enough and it is important for the spouse to hear that. Often deeply rooted in beliefs, these aren’t just opinions or differences in facts that can be argued away rationally,” he says.
Begin with a simulated account. While a constructive discussion on the pros and cons of investments is a great way for spouses to learn from each other about their risk tolerances, investing with a simulated account can help you see how your approaches would pan out without the fear of losing actual money, says Bernard George, a former hedge fund portfolio manager and now CEO of Nvstr.com in New York City.
[See: 16 Questions That Scare Investors, But Shouldn’t.]
When ready, spouses can convert the simulated account to a real one. They can also maintain separate portfolios but still see each others’ investments and provide feedback, George says.
And if there is not a significant age differential, an interactive Riskalyze questionnaire can also help couples lay out assumptions, develop cash flow forecasts, and “stress test” the results, says Andy Aran, wealth manager for Regency Wealth Management in Ramsey, New Jersey.
“[They can] ponder and jointly answer the questions where one choice is a certain outcome, such as a gain or loss of a certain amount of money, and the other choice is a 50/50 coin flip with a significant loss or gain on heads or tails,” Aran says. “When viewed in light of the financial plan’s projections we usually arrive at a joint investment policy statement reflecting their blended risk tolerance and goals.”
It’s OK to invest separately if you keep each other informed. The individual assets of each spouse can be invested with different time horizons and risk to satisfy each person’s risk tolerance and goals, says Maggie Koosa, CEO of The Alchemists, an advisory firm in Rhode Island. Just be sure to keep each other informed.
And as long as the couple maintains a thorough overview of their assets, liabilities and financial objectives, each spouse can work with a different advisor if they choose. It helps if they can meet with the advisors simultaneously at least once a year to ensure the coordination of efforts toward attaining the shared financial goals, Koosa says.
That’s because when a couple works with multiple financial advisors, they may receive conflicting advice, which puts them in the position of having to decide whose advice to follow, Winer says.
Set aside “play money” if you can afford it. “Sometimes we peel off a portion of the portfolio and let one of the partners have their ‘play money’ where they can trade and buy things that ordinarily wouldn’t be put into the larger portfolio,” says Aviva Pinto, director of Bronfman Rothschild Wealth Advisors in New York City. But this should only be money you can afford to lose should the investments go south, Pinto adds.
Split your differences in retirement accounts. Since each spouse’s retirement accounts are individually named and owned, they can be used to satisfy each partner’s risk differences, Pinto says.
“As long as it fits with the overall plan, one partner can have a more conservative allocation in their retirement account while the other can have a riskier allocation,” Pinto says.
Consider your time horizon when doing this to avoid taking unnecessary risk when close to retirement.
Know the value of your relationship and your money. “It’s important for couples to realize that the bottom line with money is different than the bottom line with relationships. The price of keeping the relationship healthy may come at a cost that is money,” says April Masini, founder of RelationshipAdviceForum.com.
[See: 10 Long-Term Investing Strategies That Work.]
At the end of the day, investing as a couple should be about fulfilling the goals you both want to achieve and being happy together.
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7 Tips for Couples That Invest originally appeared on usnews.com
