What Should We Do With Our Investments?
One of the first questions that many prospective clients ask me is: What should we do with our investments? I usually reply with: That depends. Of course this is exactly what they don’t want to hear! Everyone wants an immediate answer to their questions, yet this is a very complex issue for unmarried couples.
What’s Your Objective: Think about your own portfolio. Considering your investments, what rate of return do you want? 100%, duh! Well, if that’s your reply, I suggest you focus on a “reasonable” return. The next question to ask yourself is: What rate of return do you need? There is a difference between these questions. One speaks to investment performance, the other to goal achievement. If you want to actively trade your account, you may want to focus your investment objectives on your response to the first question.
If you are concerned more about retiring comfortably than actively managing your portfolio, then you may want to focus on your response on the second question. You see it is possible to obtain your desired investment return yet still miss achieving your goals. You will want to make sure that you are not just attempting to receive the best return on your money, but keeping your focus on achieving your goals.
Balancing Act: Should one partner have more money than the other? Should one invest more aggressively? When creating an asset allocation I ask my clients if they want to create a portfolio for the both of them as a couple or create an asset allocation for each -with their goals as a couple in mind.
When I create portfolios for couples, I utilize the most appropriate investment options available to each client in his/her investment accounts. Where you are limited in investment selection (401k’s), a couple may pick the best investments in each of their plans. For example, one of you may invest in stocks in your retirement plan at work and the other may utilize bonds. As a result, we may have client with a very aggressive 401k portfolio and the other with a very conservative mix.
This may be the best strategy for your overall portfolio, but not if you two separate. One of you may have been receiving an 8-10% return while the other was receiving a 4-6% return. The partner receiving the 4-6% return may feel a bit slighted. For this reason, many gay and lesbian couples opt for individual portfolios.
Age Differences: Quite frequently one partner may be 5, 10, 15 years or more older than the other. As a result, the older partner may have accumulated more wealth which could throw off the balance between the two of you. In this case, depending on the size of the age gap and disparity in assets, this might be acceptable. The reasoning is that the older partner might retire sooner and need the additional wealth.
If this balance were reversed, you would have a serious concern. If the younger partner has the majority of the savings in his/her retirement accounts, this money might not be accessible when the older client is ready to retire. As a result of this, you want to make sure that you create the proper balance for both partners. The objective is to make sure that the older can retire on time while not putting the younger in a situation in which he/she has no assets of his/her own. If you separate, the younger client may walk away without anything saved while the older enjoys retirement.
I recommend that everyone spend an hour or two at least annually to discuss their finances. Talk about where you are and where you would like to be. Make sure that both of you are on the same page and that you protect yourselves in the event you separate. Talking about money is rarely easy, but taking this step will simplify life going forward and help you to achieve your goals.
This article is for informational purposes only and is not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.
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