Investing while in a marriage is risky business. Hard earned money at stake as well as a marriage. Finding a balance between when investing as a married couple is incredibly difficult.
Risks of Investing When Married
Typically, one partner in a marriage will have a different risk appetite from the other and that’s okay. The key to minimising the risks of losses in such a relationship is to find a balance between being conservative and optimistic about investments. Opting for investments that provide a lower rate of return is usually better than being exposed to high risk investments which may provide higher returns but even higher consequences for couples.
The risks of investing when married could be heightened depending on investment style. If a married couple use a joint account for investments, it could help both of the people in the relationship to have more equal contributions to the investment decisions being made. However, separate accounts could be made with different grades of risk.
Emotional Decisions and Trust
Investing when married involves high risks of emotionally charged decisions being made. The dynamics of a marriage contributes to such decisions, which in many cases can lead to regrettable outcomes. Without a neutral third party, the risk of one partner in the marriage making an emotional decision may be higher. A neutral third party may offer impartial advice necessary to keep both partners grounded in their investment decisions. A financial advisor can provide more concrete evidence needed to support or rebut decisions by partners in a marriage.
With so much trust built into a marriage, its easy to also believe in investment decisions of a marriage partner. The truth is even the most skilled investors make wrong decisions sometimes. There is always a risk that too much trust is being given to a marriage partner for investment decisions. Believing in them may seem like the right thing to do but it could prove to be detrimental without the perspective of a third party.
A simulated investment account can give more clarity on their investments goals, investment tolerance, and other key factors which affect the risks they may face when investing together. Simulated investment accounts allow couples to gain insights into their investment capabilities without losing real money.
Risk questionnaires help couples to carry out stress tests, develop cash flow forecasts and lay out assumptions in relation to investments. With a risk questionnaire, they can make investments with better appreciation of the risks related to them.
Married couples should consider illiquid assets, human capital , and personal assets when investing. These can help to determine how conservative or optimistic a married couple should be when investing. Money tied up in business or stemming from a volatile income stream calls for a more conservative approach to investment. Even if it is not tied up in a business or is volatile, shooting for the moon is not always the best choice. Aligning resources with measurable and realistic goals is the key to sustainable investments.
Calvin Ebun-Amu is passionate about finance and technology. While studying his bachelor’s degree, he found himself using his spare time to research and write about finance. Calvin is particularly fascinated by economics and risk management. When he’s not writing, he’s reading a book or article on risk and uncertainty by his favourite non-fiction author, Nassim Nicholas Taleb. Calvin has a bachelors degree in law and a post-graduate diploma in business.