You may keep your money tucked into savings accounts and certificates of deposit while your spouse funnels his retirement savings into Internet stocks and emerging market funds. Or maybe you're the aggressive investor while your partner shuns the stock market. How do you develop an investment strategy you both can live with?
The answer for some couples may be a separate strategy for each partner's portfolio -- you go your way, investment-wise, and he goes his. But what if you don't have equal access to savings plans? If you're self-employed or unemployed, are you out of luck?
Fortunately, there are several ways to develop a coherent plan even when your appetite for risky investments is radically different from your partner's. And recent laws have opened up new savings opportunities for self-employed workers and unemployed spouses. Here are some ideas for investing as a couple.
If you and your partner have opposite investment philosophies, it helps to revisit your goals. When do you want to be financially independent, how much will you need to live on in retirement, how much can you contribute to your retirement plan?
The bottom line is that extreme views on either side can jeopardize your goals. Investors who are too aggressive tend to sabotage their portfolios with high transaction costs and failed attempts to time the market. Conversely, if you're too conservative, your investments will barely keep up with inflation and you'll have to save a lot more, retire later or spend less in retirement. A 30-year-old who wants to have a $275,000 nest egg when she's 60 will have to save $330 a month if she invests in CDs paying 5 percent but only $150 a month if she earns 9 percent (the historical rate of return for a 60 percent stocks and 40 percent bonds portfolio).
If you crunch the numbers on your goals together, it's easier for the conservative partner to see the danger of letting assets "loaf." He can boost his return by redirecting new money into riskier but higher-growth stock investments even if he keeps current balances in stable stuff such as stable value funds. The go-go investor can carve out a portion (say, 10 percent) to play hunches and speculate while earmarking the rest for a solid, diversified portfolio. The goal here is to meet somewhere in the middle.
Separate Parts of the Whole
Sometimes the best strategy is for you each to invest according to your comfort level -- as long as the sum of the two portfolios adds up to one coherent whole. One spouse can load up on small-company funds and international stocks while the other sticks to blue-chip companies and high-quality corporate bond funds. Or, if you both work for non-profits such as universities, one can invest a chunk in a fixed annuity (such as TIAA) and the other can target the stock funds (such as CREF stock and growth funds).
This strategy requires careful monitoring and periodic rebalancing. The stock portion will typically grow twice as fast as the bond or fixed-interest part, so your combined portfolio can get out of whack within a year or so.
Filling in the Gaps
In the best of all worlds, you'd each have a generous 401(k) plan with a rich match and lots of investment choices and can fund both. Reality can be quite different, so do you pour every nickel into the best plan and skimp on the other plan, even if it's yours? After all, you're working toward the same goals.
If you feel comfortable that in case of divorce you would get your share of your spouse's plan, it may be okay to load up one plan. Many planners suggest you put your strategy in writing just in case.
Alternatively, each partner can contribute to a retirement plan and help build the nest egg. If you're self-employed and make less than $60,000 after expenses, a SIMPLE-IRA is a great way to stash up to $6,000 plus a 3 percent match into a tax-advantaged plan. Both your contributions and your earnings are tax-deferred until you pull the money out in retirement. If you make more than $60,000, a SEP-IRA or Keogh will allow larger contributions.
"Spousal IRAs" for non-working spouses were expanded beginning last year. Even if you don't work, as long as your spouse does, you can contribute a full $2,000 a year to your own deductible IRA or Roth IRA, as long as you and your spouse make less than $150,000 total. The deductible IRA gives you a tax break up front and tax deferral on earnings, but you'll pay taxes when you pull out your money in retirement. The Roth IRA is often a better choice because you forgo the tax break up front but your money is tax-free in retirement. If your incomes are too high, your only choice is a non-deductible IRA.
The $2,000 maximum IRA contribution is lower than the present $10,000 annual cap on 401(k) contributions. However, IRAs are more flexible because you can invest in just about any mutual fund or stock or bond.
Bring in a Neutral Party
An objective financial planner can help you both figure out how much you can reasonably expect to earn on your investments and then draw up a blueprint for dividing up your portfolio. Several Internet sites, including www.vanguard.com and www.quicken.com, have calculators and formulas for developing an asset allocation to match your investments with your goals.
It all comes down to staying on course and still sleeping at night. If you and your partner can agree on a system for meeting both those goals, you'll be on your way.
Check out our Money & Relationships board for more advice and tips on how to handle money with your partner.