Couples and Money

Getting On The Same Page: Investing With Your Spouse

When couples are on the same investment strategy page, it will help avoid some of the following situations.Are we speaking a different language?

Financial experts, thought leaders, and academics have written extensively about the role gender plays in investment styles, and the innate differences can be a source of conflict during financial planning.

Studies generally agree women feel less confident about investing, and prefer to keep more cash assets, while men can be overconfident, preferring to make more trades – with either style, a singular approach often adversely affects long-term returns.

Successful long-term investment strategies can be especially challenging to implement when a couple can’t agree on what to do with their nest egg – or when one investment style dominates to the detriment of the couple’s finances.

As an advisor, facilitating communication and building consensus between clients is so important. Being on the same investment strategy page will help avoid some of the following situations:

Over-Invested in One Asset Class

Pam and Kevin* were confident they had enough money to retire, and happily sold their high-priced home in the San Francisco Bay Area, relocating to a lower cost area in the Southwest. Kevin was a do-it-yourself investor and prided himself on growing the couple’s retirement savings. Pam was happy to let her husband handle the investments, and focused on managing the household finances.

For the first few retirement years the outgoing couple thoroughly enjoyed life without work, getting involved with the local community and volunteer opportunities, and taking full advantage of their newly free time. However, when oil prices plunged in 2015, so did the value of their investments.

Since 2009, Kevin had invested the majority of their savings in Master Limited Partnership (MLP) funds that invested in companies in the oil and gas industry. He was not alone – between 2010 and 2014, $44 billion flowed into these MLP Funds, primarily for their high dividend pay-out, but also to enjoy the growth of the oil and gas industry in the U.S. In 2015 the price of U.S.-traded crude oil declined 30%, but the shares of MLP’s fell over 44%.

The devastating loss in the value of their investment portfolio prompted Kevin and Pam to reenter the job market – they realized it was no longer sustainable to withdraw from their investments for living expenses. Retirement looks very different to them now, but they are recalibrating, and dealing with changed circumstances as best they can.

Trying to Time the Market

Ann and Paul* both worked for Silicon Valley technology companies for many years and saved enough to fund substantial IRA’s for retirement, and a good amount in taxable savings, as well. During the 2007-2009 recession Paul pulled all his money out of the market, and has kept it in cash. Ann recently rolled over her 401(k) to an IRA, and on Paul’s advice has kept that money invested in cash.

Because Ann and Paul have always kept their assets separate, Ann is now withdrawing from her IRA early (before Required Minimum Distributions begin at age 70 1/2) to pay expenses. She is very concerned because there is no growth in her IRA, and she sees the balance declining. Paul insists that it isn’t the right time to invest in stocks and bonds, and is convinced there is a huge market crash coming. Ann, however, understands asset allocation and diversification, and believes in investing for the long haul. The problem is, she can’t get Paul to see it her way, and she is hesitant to rock the boat.

What can be learned from these two couples, and their financial challenges (and opportunities)?

Although men and women may have innately different investment styles as evidenced by the stories above, when differing strategies come together they can create a strong complementary approach. As with every ‘battle of the sexes’ difference, communication is key.

If Pam had been more involved in decisions about how the couple’s money was invested, she may have urged Kevin to take a more balanced approach. In Paul and Ann’s case, her long-term outlook could have helped temper Paul’s urge to control things, and time the market.

If consensus isn’t possible, I would suggest the couple agrees to have each person invest a portion of their money individually – especially when the investments involve separate funds such as IRA’s or investment accounts. In the cases I reference, it would be the responsibility of Pam and Ann to educate themselves about different options, and to use that knowledge to make confident investment decisions.

In many cases, couples at odds over investment styles choose to go it alone – without the guidance of a professional advisor to help them find a middle ground.

My advice?

Having a portion of an investment portfolio invested in a balanced way is better than none at all.

And, of course, gender differences may not apply to all couples – every individual approaches investment decisions in their own unique way. Consider your own investing style — it might be the first step in open conversation with your partner about long-term financial goals.

*Names have been changed.

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Fee Only Financial Planner Dishes on House Buying in the Bay Area

House Buying in the Bay Area | Jim and Annette’s Financially Sound, Thoughtfully Executed, Excellent Adventure

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Jim and Annette in front of their new home

“I really admire the conscientious way you bought your first house,” said I. “That’s because we’re really cheap!” said they, almost in unison. Meet Jim and Annette. They’re in their late 30’s and lucky. They both watch their pennies. If only all my clients would…well, never mind.

While many of Jim’s and Annette’s friends bought houses in the last few years, they held back. The market was too frothy and unaffordable, they thought. At the time, life was a cramped one bedroom apartment in North Berkeley. But of course things change. Soon enough real estate prices crashed, and taking the leap made more sense. They started out on their own, found some neighborhoods they liked and found some houses in their price range: no more than $525,000.

Know Thy Numbers
In the meantime, Jim and I worked on their cash flow adding in housing costs (they’ve been clients since 2007).  Both were adamant that they know the numbers and not get in over their heads.  Jim has an inviolable goal, “I want a six month buffer of living expenses at all times.”  As a self-employed graphic designer,  he has a about a thousand good reasons for doing this. And while Annette currently works for Williams-Sonoma – layoffs have begun there.  I recommended they get pre-qualified for a mortgage, which they did.

Here’s a few things they learned along the way.

Know your must-haves
Jim and Annette knew what they had to have:

1.  A good location so they could walk to shops and services, and have an easy commute.
2.  A live-in ready house: some work would be okay, but they wanted no delays or additional costs.
3.  They wanted to live near their friends.

What you can live with?
No house is perfect, especially a house in the Bay Area in the $500,000 price range. Here’s what Jim and Annette had to contend with:

Close proximity to Bart meant noise, so new windows are planned.
They lack storage space, typical of older homes (1926).
They have $18,000 worth of work  to do – plumbing upgrades, electrical work, window replacement, foundation repair and some unexpected termite damage. Closing cost credits (due to the fine work of their realtor Carol Parkinson) and first time home buyer credits ($8,000 on their 2010 taxes) will help pay for all this.

Know what you care about most
Jim and Annette are now proud and busy homeowners: they’re refinishing floors, knocking out walls and buying a few new furnishings. They splurged – on a $4,000.00 Thermador Range.   When I questioned the decision, Annette said something to me that I thought was very wise:  “It’s about knowing what you really care about” she said, “and putting resources and energy towards those things, and then making compromises on the rest.” Wise words.

My Take: Top 5 things to consider when buying a home in the Bay Area

1. Know what you can afford before you start looking for a home.  Get pre-qualified.
2. Identify the neighborhoods where you want to live. Get to know prices.
3. Make a list of your no-compromise must-haves.
4. Get referrals for real estate agents and mortgage brokers.  Make sure you’re comfortable and that there’s a level of trust between all parties.
5.  Know that the costs of home ownership don’t end with the purchase.  Endless amounts of money can be spent improving, furnishing and decorating a home. Carefully plan your expenditures based on your income and budget.  Most important: don’t rely on credit.

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