When 'I do' Turns into 'I don't agree'


When 'I do' Turns into 'I don't agree'

Compromise is essential when it comes to taking on risk in a couple's portfolio.

July 29, 2015

When you were single, you likely made most of your investment decisions with the help of your financial advisor. As a couple, you're part of a financial committee of two, which can make life a little more complicated, especially if you and your partner don't always see eye to eye.

Now that your lives and your finances are entwined, you're likely to face some serious issues about your financial future together. Even with the best intentions, how these decisions are handled can impact your relationship – for better or worse. After all, disagreeing about money matters is often cited as one of the leading causes of separation and divorce.

Couples may find themselves out of sync when it comes to something as seminal as their philosophies on investment risk. One of you may prefer to stuff all your savings in a mattress, while the other prefers to seize investment opportunities as they come. Whatever the case may be, you'll need to work out the differences and find some common ground before making any important financial decisions.

Reconcilable differences

Compromise isn't new to maintaining relationships. Chances are good that you'll find yourself negotiating on many things – from who gets the remote to who washes the dishes. The same can be said of investing as a couple. You'll also need to come to a consensus on things like retirement, education, savings and making a large purchase. It starts with introspection and communication, so you can get on – and stay on – the same page when it comes to your investment objectives and risk tolerance.

Both partners will need to be engaged in the process from the beginning and be willing to listen. It doesn't work if one of you takes over or if either of you is so steadfast in your beliefs that you refuse to acknowledge your spouse's viewpoint.

Some experts suggest monthly money dates to talk about everything from your investment and financial philosophies to your budget and debt on an ongoing basis. This is important because understanding yourselves is one of the best investment tools you and your spouse have in your arsenal, and it can keep you both from acting impulsively, which could curtail long-term results.

On your “dates," discuss your views on a wide range of money issues. Make sure you understand each other's ideas on earning, borrowing, spending, saving and investing. When you sit down to talk about your finances, try to find some middle ground.

What goals are most important? And what tradeoffs are you willing to make to achieve them?

If a child's future education is your priority, would you be willing to save more toward that goal or invest a little more aggressively for a better chance of achieving it? Would you ever consider sacrificing education funds to achieve a shorter-term goal and then start saving again? It's important to discuss how you'll handle any tradeoffs that need to be made.

What do you consider an acceptable loss? How much can you afford to lose?

“Acceptable loss" is a relative term, one that each couple must face for themselves. Your advisor should have access to software and other measurement tools to help accurately assess where the two of you stack up and help you arrive at an overall risk tolerance. This matters when it comes to how much risk you can handle. Let's take retirement, for example. As you get closer, you may become more conservative because you no longer have decades to make up for any losses if a riskier investment doesn't pan out.

Can you emotionally handle risk?

Your ability to handle a certain level of risk – financially and emotionally – should be considered. Can you easily adapt to an unexpected and significant loss? All investments involve the possibility of making money or losing some. The question is can you accept that and to what extent? Talk about what unknowns would keep each of you up at night with worry. Risk that stresses out you and your partner or creates problems in other areas of your lives may not be worth it. On the other hand, undue fear could hold you back from growing your wealth and meeting future needs. It may even keep you from keeping pace with inflation, which means you could lose future purchasing power.

How will your family be affected by your decisions?

If you have dependents of any age, you'll have to account for their needs and wants in your financial objectives and invest in appropriate vehicles that allow you to provide for children and elderly parents while working toward your own goals.

How stable and secure is your employment income?

If one of you is self-employed with erratic income or plans to stay at home after the birth of a child, then that will factor into how much risk you're able to incorporate in your investment strategy.

What other kinds of risks will you face and how will you deal with them?

Investing risk comes in many forms: inflation risk, interest-rate risk, economic/political risk and market risk, to name a few. Your advisor can help you better understand these risks, talk through how they could impact your household portfolio and suggest strategies to help mitigate them. He or she can also help you address your insurance needs to help protect your family, business, health, property and your way of life.

Are you comfortable with your knowledge of investing?

To truly get a grasp of your attitude toward investment risk, take some time to learn more about investing so you have the knowledge to make informed decisions. Studies have shown that older women, in particular, have been more risk averse because they haven't been regularly involved in making financial decisions. But knowledge is power in this case, and there are many reliable sources to help anyone understand the fundamentals. Your financial advisor can help here, too.

It's not all or nothing

If for some reason you find a point of contention that cannot be resolved, think of other ways to work around any sticking points. For instance, you may want to dedicate certain joint assets and accounts for mutual goals like retirement, education, housing and vacations, and then set up individual accounts that each of you has complete control over. Employer-sponsored retirement accounts usually are individually controlled, but you may still want to discuss the allocation in these accounts so that your overall household portfolio strikes the right risk/ reward balance for your family.

Since many relationships end because of money problems, consider getting some guidance from a financial advisor and maybe even a marriage counselor. A patient financial advisor can help you sort out your differences and help you determine – in real terms – just how much uncertainty you can tolerate in your investment portfolio and then suggest money-management strategies. The marriage counselor can help you and your spouse improve communication and work as a team.


Disclosure: Asset allocation does not ensure a profit or protect against a loss.

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