Sharing life with a significant other means sharing a wide range of decisions as partners. Whether it’s household chores, parenting or paying the bills, all of these decisions are a reflection of your values, goals and dreams for the future. Many of the choices you make as a couple are simple, while others are more complex to sort out. For most couples, strategic financial decisions are the trickiest, especially when it comes to investing.
Separate or joint investment portfolios?
One strategic investment financial decision for many couples is whether or not you should have separate or joint investment portfolios. Scott Cassidy, Wealth Advisor with Credential Securities, says that this decision ultimately comes down to two things:
1. How closely aligned a couple is on their current and future goals.
2. The investment ‘personality' or risk tolerance of each partner.
For example, one person may have a high-risk tolerance and be comfortable with investments that offer a higher return, even if that means a greater chance of market volatility. The comfort level of the other half of the couple may start and end with the safety of registered products even if that means a lower level of return on the investment. Should this couple invest separately in this case?
Not necessarily, says Cassidy. Coming to common understandings about investing can result in substantial financial benefits for their future, whether they decide to hold duplicate or separate investments. This begins with exploring the couple's life goals, budget and each partner’s comfort level with the risks associated with investing.
The first step for this couple would be a simple discussion with a wealth advisor about their future plans and goals as well as how they view money in their lives. “Money is a means to an end and investing it should always have a purpose. Clear communication between couples about future savings goals like their children’s post-secondary education, homeownership, vacations and eventually, retirement, requires honest discussions and understanding of what each person truly sees for their futures,” says Cassidy.
They also need to understand how much they can afford to invest. Investing money for tomorrow takes away from today’s monthly budget. A wealth advisor can help a couple understand where their money is going and where it can be saved in order to maximize investment dollars while still ensuring their family can live comfortably day-to-day.
The importance of diversification
With goals and budget established, uncovering the individual and collective investment style of the couple becomes a fairly straightforward process. A wealth advisor can guide each partner through an explanation of market movement and volatility to determine their own level of risk tolerance they are willing to accept to help meet their investment goals.
This then leads naturally to the question of whether each partner should invest separately or together. “Holding the same or duplicate investments gives couples the same horses in the race sort to speak,” Cassidy explains. If the horses win, there can be huge gains for the couple with duplicate investments, but they should understand that the reverse can also be true. “If an event affects the market negatively, you lose twice because the equity positions held by both spouses are negatively impacted.”
This may be a reason that some couples decide to invest independently, but this risk can be mitigated with proper diversification, says Cassidy. “Holding different investments such as two balanced mutual funds from two different high-quality asset management firms in each partner’s respective RRSP accounts is a great example of diversification that would give the couple the best bet of capturing growth in a bull market as well as protection in a bear market.”
There are some downsides to watch out for in holding duplicate investments, however. MoneySense consulting editor and portfolio manager Dan Bartolotti cautions couples against being “identical twins” when it comes to investment. “Say your individual stock and holdings include a lot of Canadian banks and energy companies. If you also hold a Canadian equity mutual fund filled with these same sectors, you may be paying a high fee to the fund company for little diversification benefit, since you already own most of the same stocks,” writes Bartolotti. “On the flip side, you may be paying too much in trading commissions to buy stocks you already hold via the mutual fund. It’s probably more efficient to get your exposure one way or the other, but not both.”
Cassidy agrees that these are solid points to consider when deciding whether or not a couple should hold duplicate investments. His advice for any couple deciding on the best way to invest as a household is to meet with a wealth advisor to explore key questions unique to your situation. Beyond budget and common goals, what does your financial picture look like? Are you in the same tax bracket? Is holding the same investments costing you more in fees? “A wealth advisor can help make sense of all of these elements,” explains Cassidy. “Most importantly, taking this step will help you to establish open and honest communication, which is the best investment policy there is between couples. Building on that foundation is the key.
Innovation Wealth can help
The couple that pays together, stays together. Frequent, honest conversations with each other along with the guidance of an expert is the best way to ensure a long and robust financial future. A wealth specialist has the expertise to guide you through investing. Make an appointment today!