Investing as a Married Couple: How to Compromise on Risk and Reward

If you and your partner are struggling to come to an agreement on how to invest as a married couple, you're not alone. According to Fidelity Investments' 2021 Couples & Money Study, a whopping 40% of couples disagree on how much risk they're comfortable taking when it comes to their portfolio.

Luckily, there are ways you can get on the same page with your investing strategy so that neither you nor your partner feel like you're taking on too much risk—or playing it too safe and missing out on potential rewards. Because even if you've already gotten started on your investing journey, you're now in this together.

The first step in coming to a compromise on your investment approach as a couple is identifying your joint investing goals.

To do so, Marci Bair, a CFP and the founder and president of the San Diego-based firm Bair Financial Planning, recommends that couples examine their big picture financial aims and then break them down into manageable, specific objectives. So as opposed to just saying you'd like to buy a new car sometime soon, Bair recommends that couples get specific on exactly when they want to buy the car, what type of car they would like to buy, and approximately how much they plan to spend on the purchase. 

Having these discussions is key to ensuring you're on the same page financially, and to avoiding financial friction down the road, which can be a common source of tension for couples. Bair recommends that couples take the time to share their full financial track record, including both the positives and the negatives. "If a couple understands that, they can at least address it and work towards those common goals," Bair says.

As you work toward defining your joint investing goals, you'll need to decide how soon you want to meet them. This will help you determine your time horizon, or how long you plan to hold an investment in your portfolio before you sell it in order to meet your desired financial objective.

Often, your portfolio will contain numerous investment goals with varying time horizons, as it's common to be working toward a number of goals at once, such as buying a new car, saving for your child's college education and ensuring you're prepared for retirement. To figure out your time horizon(s), FINRA recommends bucketing your financial goals into three broad categories:

• Short-term (less than three years)
• Mid-term (three to ten years)
• Long-term (more than 10 years)

Why is it important to sort this out? Well, your time horizon shapes how you will invest. Your investment approach will be very different if you're planning to buy a house next year, versus within the next 10 years, for instance.

In general, the longer your time horizon, the more risk you can afford to take. This is because your portfolio will have more time to recover if it suffers a loss and to ride out the ups and downs of the markets.

Your time horizon isn't the only factor that determines how much risk you should assume when investing. It's also important to take into account your overall plans as a married couple. Specifically, couples should consider the following when determining how much risk they're comfortable with taking on:

• Do you want kids? If you and your partner are planning to have kids, you'll want to take into account those upcoming expenses when determining how much money you're comfortable putting into the market. You might not feel as comfortable riding out a declining stock market when you have childcare expenses added to your plate.
• Are you saving for your child's education? Similarly, you might not want to assume as much risk if you have a child who is approaching college. On the flipside, if your child is still in diapers, you might be more comfortable taking on a higher level of risk in the hopes of greater rewards, as your time horizon is longer.
• Do you want to buy a house? Again, your investment approach will depend on how soon you're hoping to purchase a home. If you're planning to make a down payment in just a couple years, you'll likely want to take a more conservative approach. If your home purchase is still a distant dream, you could take on more risk as you'll have a longer time to ride out market cycles.
• Are you hoping to retire early? If you're hoping to retire early, this will shorten your time horizon, which in turn usually decreases the amount of risk you should take. You'll want to save and invest aggressively when you have more time left to invest to ensure you have the funds to pull off an early retirement, but as you approach your goal age for retirement, you'll likely want to switch from growth mode to income mode.
• Do you ever want to take extended time off? If you know that at some point in your career you'll want to take a break or even switch career paths, you'll need to build more of a financial buffer to fund your life during your time away. This might mean dialing back your risk as you approach this break from regular income, and while you're in it. If it's still far off, you could invest more aggressively (while still saving) to beef up your funds. 
• Are you planning to go back to school? Similar to a career break, returning to school requires some financial padding, including a solid emergency fund and a larger savings account, which might mean putting more money there than in the market and taking fewer risks. Again, though, time horizon plays a big role—you might be more able to withstand losses if you're not about to start paying tuition.

Once you've gone through the process of identifying your financial goals, deciding how soon you want to meet them, and considering your other life plans as a couple, you should be in a good place to start coming up with a joint investing strategy.

As with many things marriage-related, there's a good chance some compromise is going to be involved. Luckily, there are a number of ways to do this when it comes to investing.

Use diversification to your advantage

Diversification, or spreading your assets across a number of types of investments, is key to reducing your portfolio's overall volatility and risk. As such, it doesn't necessarily have to be your way or your partner's way — you can both have a little bit of what you want in your portfolio.

Let's say your husband is more risk-averse than you are, while you want to have some fun with investing and are willing to take some risks. You could set aside some "fun money" that isn't crucial to your financial goals to try your hand at investing in crypto, while your husband could take the safer route and opt for a more stable and consistent strategy like investing in U.S. farmland. By investing in both, you'll increase your portfolio's diversification, which can help mitigate risk while maintaining exposure to potential rewards.

Beef up your emergency fund to better balance risk

If your partner is pushing to take some more risks with your portfolio but you're feeling more conservative (or vice versa) one way to meet in the middle is to build a bigger cushion to fall back on before taking on more risk. By bolstering your emergency savings fund, you can make the spouse with the lower risk tolerance feel a bit safer—and also provide more buffer against any financial losses.

Remember you don't necessarily have to combine everything

Just because you're married doesn't mean all of your money has to be too. It's up to each couple to decide whether they want to put everything together into one joint account, or if they'd rather maintain separate accounts. 

Having a joint account can be nice for goals you are working towards together as a couple, like saving up for a house or for your child's college education. Everything is consolidated in one place, and you can work together as a team to reach your goals. At the same time, a certain level of agreement is needed to maintain a joint account.

Maintaining separate accounts might make for more to keep track of, but it can also allow each person in the relationship more freedom in how they spend and invest at least some of their funds. The more aggressive investor in the relationship could feel free to set aside some money to try their hand at investing in real estate or art, while the more conservative investor wouldn't have to deal with stomaching more risk than they were comfortable with.

Bring in a neutral third party

Talking about money isn't always easy, so sometimes it can be helpful to have a neutral third party in the room, like a financial advisor. "There's so many times that couples may grow up with different money stories, different ways that they were raised around money, and so they can have their one kind of history when it comes to money and dealing with it. And then it can be a very stressful conversation as well," Bair says.

Couples may find that having a financial professional present while they have these tough conversations can help diffuse the tension, allowing them to keep their conversation on track and more easily get on the same page.