Being on the same page as your spouse is absolutely critical to investing and relationship success.
There are many people you can consult when making investment decisions, including investment advisers, research firms, investment clubs, and good friends. But there is one person that you should consult first: your spouse.
If you are making investment decisions for your household, you are essentially a fund manager and your spouse is both your client and managing partner. This means that you hold a position of great responsibility because this person is relying on you to make sound investment decisions that materially affect their life.
As investors, we have to process and consider an immense volume of data and information to make sound decisions. There are entire strategies designed around how to manage this information. It can be easy to get caught up in the pursuit and forget an essential step: communication.
At the end of the day, we are each held accountable by our spouse, and there are no artful accounting tricks to obscure our performance. It not only matters how well we did — it also matters how we got there.
How to do it
Investing is inherently risky, and it is inevitable that we will lose money from time to time. Being on the same page as your spouse is absolutely critical to investing and relationship success. Over the past two years of the “meme stock craze,” I have seen inexperienced investors bet their entire life savings on obviously speculative investments only to lose all or most of their money — without their spouse or significant other knowing.
These are the situations we must avoid. I am an investor, not a gambler. Your spouse will understand when an investment loses money, but they will not be so understanding when a bet loses money.
It is important to develop an investment plan with your spouse. This plan does not need to be on paper, but it should be well understood and agreed upon. These are the major segments of our plan:
The investment goal
My spouse and I have the same investment goal: highest risk-adjusted total returns. Because we are relatively young, we have time to weather the volatility of equity markets and we don’t need income. This may be different for other couples. Volatility is unkind to the emotions of unseasoned investors. If you know that your spouse wants to avoid volatility, you should avoid assets that experience high volatility, such as crypto, commodity producers such as BHP Group Limited (BHP) or niche classes such as uranium, represented by the North Shore Global Uranium Mining ETF (URNM).
To focus on low volatility investments, focus on blue-chip companies with reliable track records such as PepsiCo, Inc. (PEP) and McDonald’s Corporation (MCD). Alternatively, portfolio volatility can be subdued by allocating assets to low volatility ETFs such as the Invesco S&P 500 Low Volatility ETF (SPLV).
The portfolio allocation
One of the most important decisions that a fund manager can make is deciding the portfolio allocation. Investing is dealing in probability, not certainty, and a properly constructed portfolio will help achieve your goals by diversifying risk and providing flexibility.
I keep a portfolio allocation database, which allows me to produce portfolio allocation graphics that I can quickly share with my spouse. We have a portfolio allocation goal pie chart and a current portfolio allocation pie chart to visualize where we are, where we want to be and what needs to change.
The portfolio is composed of the types of asset classes that we agree work toward our goal. It is important that your spouse understands what it means to be long or short on equity before you initiate the trade. Trading an equity short includes particular risks that your spouse may not be comfortable with. Likewise, I make sure that my spouse is comfortable with how options work before including them in our investing strategy.
Having conversations about risk can be difficult. I would not invest in an asset if I could not explain the risks to my spouse. By communicating often and discussing portfolio strategy, I have a sense of my spouse’s risk tolerance and what position sizes they are comfortable with for blue-chip companies versus speculative ones.
How we got there
Investing with a spouse is not simply about performance and risk. Investing is an emotional process. Like me, my spouse has her own ideas about what types of assets are investable and which are not.
Spouses may differ in their opinions about the moral or ethical suitability of investment options. Here are a few examples of sectors and companies that may be objectionable to my spouse:
Companies that produce or sell tobacco or marijuana such as Altria Group, Inc. (MO) and Innovative Industrial Properties, Inc. (IIPR).
Consulting with your spouse about these decisions is important and expresses your respect and accountability to them. Still, there may be companies that you already know what their answer will be, such as the recently popular equity with superb SA ratings RCI Hospitality Holdings, Inc. (RICK). The company is in the top 10 stocks rated on Seeking Alpha with “strong buy” ratings. This is one equity that I agree has strong fundamentals but I won’t invest for ethical reasons.
Your spouse also may object to specific equities due to political reasons. There are countless potential political conflicts that are worthy of investigation and discussion. The recent war between Russia and Ukraine has certainly brought many equities into question.
On the flip side, there may be companies that your spouse wants to invest in that you do not agree with. As example, my spouse may prefer to invest in brands that she is familiar with, such as Starbucks Corporation (SBUX) or Target Corporation (TGT). Although I think these are good companies, I may not be interested in investing in them at the time. I expect that I should be prepared to present my research and investment thesis to my spouse, just as I would on Seeking Alpha, as to why I am avoiding those companies. This is more than just a courtesy to my spouse; it is my duty.
Investing is not easy, and by its nature it is risky. Every person who makes an investment decision is assuming considerable responsibility for that decision. When we share our lives and money with someone else, we assume additional responsibility.
A successful investing relationship requires work. It adds additional steps to our investment process and demands higher quality communication between spouses. It is important to me to involve my spouse in these decisions as much as she wants to be. I never want to have to disclose a position I took against her wishes, even if the position was profitable. The money cannot buy back the loss of trust.
Every successful investor has a team they work with to gather the right information, interpret it correctly and deploy it effectively. Your spouse or significant other is the most important person on that team.