NEW YORK (MainStreet) Early on in their marriage, Michael Hobbs and his wife took the individual approach to saving and investing. Yet not too long ago, they got some advice urging them to team up to aggressively improve their financial situation. Now they're investing partners and liking the results.
"Once we finally took a joint approach to spending, saving and investing, we experienced substantial results that neither of us had accomplished on our own," says Hobbs, president of PahRoo Appraisal and Consultancy in Chicago. "It has truly been eye-opening and surprising. Our experience is that alignment and the power of communal force yields significantly greater results than the solo route."
So does what works for the Hobbs make sense for you and your spouse or partner? Financial experts say there is no right answer to that question -- each couple is unique. Yet they emphasize that young couples that are newlyweds, planning to be married, or in a long-term committed relationship should establish some ground rules for investing sooner rather than later.
"More often than not, couples are focused on the short term and do not have investing styles, risk tolerance and retirement goals on their radar," says personal finance expert Felix Malitsky of MetLife Financial Group of New York. "One of the most important steps in managing finances as a couple means having an honest conversation about money early on, understanding how your partner thinks about money and investing, and continuing these open financial conversations down the road."
Among the actions, Malitsky and other experts recommend that couples take:
Assess current investments: Each of you probably has some investments or a retirement portfolio that dates back to your single life. Evaluate your individual holdings, and start considering the pros and cons of investing together. The amount, types, and performance of your individual investment portfolios going into a marriage will likely influence your approach moving forward. In addition, while most young couples would rather not think about splitting up, it's a possibility worth considering when it comes to finances. Jonathan Leidy, a wealth manager and retirement plan expert with Portico Wealth Advisors, notes that in most states in the event of divorce all property and assets obtained after you are married are subject to division. The only exception would be inherited assets. "So if an individual wants to preserve their sole and separate property rights to either pre-marital or inherited money, he or she must keep those assets in distinct accounts, without co-mingling them with marital funds," Leidy says.
Identify investing styles: You like buying stocks in the brands you love; your spouse sticks to his dad's advice to always buy tried-and-true blue chips like IBM. It's important to figure out your similarities when it comes to investing, and where your differences may clash. Considerations should include your tolerance for risk, your established investing approaches, and what your goals are for both short and long-term investments.
Charles C. Scott, a financial advisor with Pelleton Capital Management, says understanding your spouse's perspective on money and investing is the "most important component" of determining how to invest moving forward. "Spouses don't necessarily need to agree totally on things, but they need to really understand each other, and acknowledge the other person's point of view," Scott says. "Without this cornerstone of understanding, issues will undoubtedly come up on the future."
Establish your approach: Now that you have a good perspective on each other's current portfolio, investing style and appetite for risk, you can start to formulate your approach as a couple.
"It's imperative that couples work as a team," says Elle Kaplan, CEO and Founding Partner of Lexion Capital Management. "Create a game plan that is a good fit for your situation, your needs and your ultimate goals." While establishing that approach, Kaplan says to focus on both short and long-term goals, while also taking into account both mutual and individual objectives for investments. "Ideally, both people are actively involved and both are on the same page about how the shared money will be managed," she says. Now is also a good time to evaluate if it makes sense to draw on the expertise of a financial advisor, or to go it alone.
Be flexible: Your investment approach as a couple does not have to be an all-or-nothing proposition when it comes to shared investing. Jennifer R. Lee, President of Modern-Wealth, a financial advisory firm in Bradenton, Fla., says often the most logical approach is something of a middle path when it comes to a couple's investments. She notes that with so many marriages ending in divorce, that "it can be a daunting notion to consider investing together." She recommends making sure each partner invest in their individual 401(K) at work, and then also get individual Roth IRAs if they are eligible. After that foundation is in place, shared investments for targeted goals should then be considered.
"Use a joint investment account for a specific purpose, like a trip to Africa, a new in-ground pool, refinishing a baby room or building a deck," Lee says.
Track your performance: Figure out a consistent plan for tracking results, making new investments, and rebalancing your portfolio. Also plan a once-a-year meeting to determine if your over-arching investing plan still works for you as a couple. As Michael Hobbs and his wife have found out, often an approach that made sense earlier in your marriage might not be the best choice later on.
April Masini, the relationship advice guru behind Askapril.com, notes the importance of both spouses staying current with investments a point she has found to be particularly important for women. "Many times I hear from women who didn't realize what their husbands were doing with the investment portfolio because they defaulted to a no-involvement position," Masini says. "They are usually angry, but the reality is they sat on their hands and didn't lean forward and see what was going on. Getting involved in your separate or merging investment portfolios is wonderful way to keep your eyes wide open in a relationship."
--Written by Scott Westcott for MainStreet