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Three Investment Management Tips for Couples

One spouse is responsible for making the investment decisions in the majority (56%) of households surveyed by investment firm UBS. Men are the primary decision-maker in approximately 40% of households, while women are the primary decision-maker in approximately 16% of households.

Though it’s common to have one person make the investment decisions in a household, survey respondents tasked with the responsibility didn’t express much satisfaction with the role. Notably, the less-engaged spouse isn’t satisfied with the division of labor either. Women in married couples were the least confident about their financial situation in retirement. Women were also the most likely to report disagreements about how much money to spend in retirement (30%).

Given these findings, UBS offered three options for potentially improving outcomes and satisfaction.

Plan together and then assign responsibility for execution. UBS suggests couples create an initial financial plan together and then divide the responsibilities for executing and monitoring the plan. The firm believes that both spouses will become more engaged and satisfied if this approach is followed.

Focus on wealth allocation instead of asset allocation. UBS’ survey results revealed higher tolerances for risk among those making the financial decisions than among those who are not responsible. This difference in risk tolerance held regardless of gender, even though men overall tend to be more tolerant of risk than women are. The investment firm says the disparity in risk tolerances could lead to an abandoning of a long-term financial plan during bear markets if the portfolio losses are greater than the spouse with the lower risk tolerance can withstand. A compromise solution would be to include less volatile investment products, variable annuities and long-term care insurance.

Define success in mutually beneficial ways. More men surveyed (52%) than women (41%) seek to beat the market, while women are more likely than men to focus on the progress they are making toward their goals (29% vs. 21%). UBS says a compromise could take advantage of both asset allocation and asset location (using taxable and tax-sheltered accounts to minimize tax liabilities) to structure a portfolio to both achieve long-term goals and outperform market benchmarks.

Source: “Three Suggestions for Household Financial Decision Making,” UBS Investment Insights, May 2, 2014.


Discussion

Sheila Beall from NY posted 6 months ago:

I don't understand the difference between wealth allocation and asset allocation.


Ron from WA posted 6 months ago:

Asset allocation refers to division of a portfolio among various asset classes, such as stocks, bonds, real estate, cash, etc., in order to achieve a desired balance of risk vs. return. It may be helpful to think of it as a strategy, or means to an end.

Wealth allocation refers to the intended purpose of assets. The focus is on desired uses, such as retirement living expenses, travel, charitable giving or legacy inheritance, etc., and timing of those uses. It may be helpful to think of it as a lifetime budget plan, or bundle of goals.

The suggestion in the article is that it's important for couples (or anyone, for that matter) to consider and agree on the goals first, because those goals will affect asset allocation choices (among other investment management parameters) in the present.


Barney from WA posted 6 months ago:

I totally agree with involving both husband and wife in the asset allocation decisions. To achieve these goals, I would prefer to start with a budget. My wife does not like to budget because she feels I am blaming her for our overspending. How can I involve her to help with budgeting?


Wayne from WI posted 6 months ago:

It is not uncommon for couples to have difficulty with creating or keeping a budget. That is sometimes because one or both do not understand the right way to create or maintain a budget. If one spouse creates a budget and then demands that the other comply, the budget is destined either to fail or to create additional friction. To get started right, I strongly suggest taking Dave Ramsey's Financial Peace University class. These are often held in various parts of the country and are hosted by trained facilitators. You can find FPU on the internet.


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