Differing Views: When Partners Disagree on Retirement Investing

When spouses have different investing styles, retirement planning can take some compromises from both sides.

4 min read
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It’s said that couples sometimes start to resemble each other as their relationship progresses. But when it comes to investing, that may not always be the case.

We’re often told to find our risk preference, but how does that apply when one partner likes to make aggressive bets on the market and the other is happier with cash under the mattress? There are ways for couples to work together toward retirement while feeling comfortable with their allocations, but it can take some compromises on both sides.

Know Thyself … and Thy Partner

Whether you’re young marrieds or a veteran couple, each of you should consider taking a simple online quiz that assesses investment styles. In fact, you might want to do this even before tying the knot, because money tends to be a source of friction in many relationships. It’s best to know what you’re getting into before you invest together. Talk over the quiz results with your spouse or significant other to see where you agree and disagree.

Arranging a meeting with a TD Ameritrade Financial Consultant can help you understand your risk tolerance. TD Ameritrade’s Financial Consultants help investors determine where their risk philosophies stand.

For example: “Where are you on a scale of one to 10, with 10 being the most aggressive and one being most conservative? Are you a three, a five, an eight?” asks Robert Siuty, Senior Financial Consultant for TD Ameritrade.

Coming to Terms with Risk Tolerance

Although a recent TD Ameritrade study found that couples with similar investing and saving styles tend to attract, that isn’t always the case. One member of the couple might be more comfortable with risk than the other.

Sometimes, a couple approaches a financial consultant and discovers they have very different investing styles. As a next step, the consultant can run the couple’s portfolio through a stress test that puts various possible allocations through a number of different market risk scenarios. This can help you and your partner understand how each of you might react to a potential downturn or rally, and you might end up learning something about yourself and your spouse or significant other.

If you’re the more aggressive party, this could mean rethinking how much risk you really want to expose the portfolio to. Taking on too much risk could open you up to a drawdown that might wipe out several years of returns.

“By stress-testing the clients’ portfolio and showing them, based on their risk profile, the potential downside risk they’re exposed to, it’s often an epiphany moment for them, and may help them in realizing a need to pull the reins back with their allocation,” Siuty said.

And if you’re the more conservative party, a stress test can help demonstrate the drawbacks of being too defensive with investments. Low-risk investments such as passbook savings accounts or certificates of deposit, for example, might not outpace inflation over the long term, which means potentially eroding the value of your money over time.

This exercise can help couples consider the upside and downside of each risk tolerance scenario so they can meet somewhere in the middle.

Locking Horns? Consider This

What if you can’t agree? Some analysts suggest that if you and your partner have very different risk profiles, you’re best off going with the more conservative partner’s investing strategy. Although your savings might never reach the heights a more aggressive stance could potentially provide, a defensive investment plan would be more likely to provide a reasonable compromise, and possibly less friction. in the relationship.

If you’re the more aggressive partner and you chafe at this idea, consider how you’d feel explaining to your spouse or significant other the consequences of a major drop in your investment portfolio when a bear market roars through. Maybe that thought is enough to keep your powder dry. If you do go for a more conservative plan, however, be sure to look at your goals, because you might have to consider working longer or giving up some possible retirement perks like that big African safari if your money can’t keep up as well with inflation.

Some couples invest together but allow the less risk-averse member to keep a separate account with a small amount of money they can afford to lose. This money could be invested more aggressively.

Agreeing on Goals

It’s also important for you and your partner to agree on goals before making major investments. Many couples spend years discussing their hopes and dreams, so this step can be elementary. Other couples, however, may not have stopped to have the conversation about plans for retirement, children, and possible “fun” pursuits like vacation homes and hobbies. If you haven’t had this discussion, it can be important to do so in order to build a portfolio positioned to help pursue your needs.

Also, remember that before investing, it’s very important to have an emergency savings fund that can tide you over in the event of a job loss or other life change. This is something you both can hopefully agree on.

Use Online Tools

If you and your spouse don’t want to take the step of meeting with a professional consultant, TD Ameritrade offers its clients some online tools that might help you assess your risk tolerance.

TD Ameritrade clients can also log onto the The TD Ameritrade website and use the Portfolio Planner. This can give both of you a sense of what type of investments might fit into a comfort zone that appeals to and doesn’t appall each party.

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