Becoming a couple comes with a lot of compromises and some long discussions to get together on the same page when it comes to planning for the future and investing. Since investing is so important to plan for retirement it is vital for couples to address this issue sooner rather than later. While this may seem like an easy task, it can be a difficult situation especially if one of you is a conservative investor and the other prefers a more risky venture. If you find yourself on different pages about investing, or just need some tools to begin investing together, try the 10 tips below.
1. Consider Paying Off High-Interest Debt First. While it is essential to invest as early as possible, if you are considering investing to earn 5% but have credit card debt at 14%, the math is against you. Make a plan to eliminate your credit card debt ASAP. When your debt is gone, apply the same payments to your investments to fund your future financial goals.
2. Invest as Much as You Can, as Early as You Can. After you have paid off your high-interest debt, you should determine how much you will be able to invest. It’s important to remember that investing early gives your investments years to compound, resulting in much bigger savings down the road.
3. Exercise Caution With Large Purchases. Sometimes trying to “keep up with the Jones” now can ruin your future. Always consider whether a current expense is worth having less invested in your future. For many, the thrill of driving a new car evaporates almost as quickly as the value of the car depreciates.
4. Determine Your Goals and Come Up With a Plan to Get There. To start with, you will need to determine the minimum amount you will need to achieve your retirement or long-term investing goals. Then apply a reasonable investment return; we suggest 4% to be conservative. Then calculate the amount you’ll need to invest at this return to achieve those goals.
5. Decide on Your Risk Tolerance. This can be the difficult part for many couples if one is a conservative investor and the other prefers more risk. Yet, for many couples, they really are unaware of what their risk tolerance is. To determine this, you can discuss your previous experiences both good and bad with your investments with a financial advisor who can help you calculate your risk tolerance. Always keep in mind that losing money hurts you more than making money helps you: a 50% loss requires a 100% gain just to get back to where you started!
6. Try Starting With a Simulated Account. While understanding your risks and the pros and cons will get you started, if you are still a little nervous about jumping in, you may benefit from investing in a simulated account. This can help you to see how your decided investment approach may actually play out in the future without actually risking your money. This may also be a good option if couples are deadlocked on which investment option is better. You can use a simulated account as a compare and contrast methods. These simulated accounts can provide a stress test for your future investment.
7. If You Choose to Invest Separately, Keep Each Other Informed. If you choose to invest your money separately due to your different risk tolerances, keep each other informed. Make sure to discuss your investments with your significant other and schedule at least one annual meeting between advisors if you’re using different advisors to be sure that your combined goals for the future are being met.
8. Section Off Some "Play Money" if Your Budget Allows. If you have some extra investment money to play with, consider creating a “play” investing fund. This money can be used for risky investments that may result in a high payoff but won’t ruin you if the investment falters. Even most risky investments are safer than going to Las Vegas, and may satisfy your urge to take risk.
9. Split the Risk Into Different Retirement Accounts. If each spouse has a separate retirement account, and you want to have some conservative investments and riskier ones, you can consider splitting the risk between the two accounts. Keep one account conservative to ensure you will have enough to meet your retirement goals and future needs and have the second account for high-risk investments. This can also be a good practice if you and your spouse are having difficulty deciding on the risk you want to take.
10. Know the Value of Both Your Money and Your Relationship. While having a healthy bottom line and the proper investments for the future is vital to your life after retirement, it is essential that you not only value your money but also your relationship. Money can often divide couples. By compromising and getting on the same page, you can maintain a healthy relationship and continue to move forward with your future goals.
Try the tips above to set your future goals with your significant other and help you get on the path to a stable future that you can both enjoy after your years of hard work.