Here are seven tips to grow old and rich peacefully with your significant other.
Couples that invest together, stay together. But with money among the top topics that couples fight about, attempting joint investments could also be a cause for strife.
Want to avoid trouble in paradise while growing old and rich together? Consider these seven essential tips before you plunge into investments hand-in-hand.
Tip 1: Know each other’s money personality
Not everyone thinks about money the same way. Our attitudes, beliefs and behaviours towards money are shaped by our individual circumstances and backgrounds, which vary from person to person.
For example, someone who grew up witnessing quarrels about money may develop an ambivalent or avoidant attitude (because in their experience, money causes trouble). Another person who was rewarded for saving regularly in childhood is likely to continue doing so throughout adulthood (because for them, money is enjoyable!).
Therefore, even though you and your spouse could share similar economic statuses, it is important to recognise that your individual relationship with money may differ. Failing to understand this is one of the biggest causes for quarrels when couples try to invest together.
Therefore, a good place to start is to learn each other’s money personality, so you can establish a baseline understanding of each other’s money attitudes, and also help point out when the other party is getting stuck on old habits or negative beliefs.
Admittedly, personality tests aren’t exactly a science. But doing a few different tests in combination can help you and your spouse uncover crucial information about each other’s money attitudes.
Start with this free test by The Money Couple for an overview. Then, find out more about your investment personality with this InvestRight quiz.
Tip 2: Clear debt first
Before you start investing together, have an honest discussion about whether you are holding any debt, and how much. (Try not to judge your partner for seemingly frivolous spending – remember, different money personalities.)
If there is substantial unsecured debt with high interest (typically 28% per annum), you should make a plan to first pay off the debt before investing.
It’s simple math; it’s highly unlikely that your investments will provide returns higher than the interest on your debt. Hence, investing your money instead of paying off debt is like trying to bail out a leaky boat with an equally leaky pail.
It’s far better to clear your debt first before you start investing. In fact, think of clearing your debt as investing in a financially stronger and more stable future.
Tip 3: Set a budget and commit to it
Once you’re ready to start investing together, set a budget and commit to it.
The point here is not to have a sword to hold over each other’s heads. Rather, it is to set realistic expectations at the beginning of the journey, which will (hopefully) head off any passive-aggressive comments about ‘keeping your word’ further down the road.
While investing together is an emotional, romantic decision (it’s a solid sign you’re in it for the long run, aww), it would serve you both better to be coldly logical here. Let each person set a budget they are willing and able to commit, according to their own ability.
After all, there’s no point throwing every spare cent into your joint investment in the pursuit of some rosy, glittering far-off future, only to get snippy at each other come Sunday because you can no longer afford that mocha frappe.
What matters here is that you both are taking action together for your future, and that’s what counts.
Tip 4: Be flexible about frequency
Generally, investments do best with regular injections of cash, due to practices like dollar-cost averaging. But that doesn’t mean you need to be locked into a monthly or weekly investment cycle.
Instead, choose investment platforms and products that suit both your cash flow, which can be very different between a salaried worker and a freelancer in the gig economy.
That means instead of locking yourselves into, say, an annuity or endowment fund that demands monthly premium payments, consider exploring other investments with more freedom in investment cycles, such as robo-advisors that allow you to inject cash on your own time.
Another strategy could be to make lump-sum investments with your bonuses.
Tip 5: Decide how you will use dividends
Besides growing in value, some investments also provide cash dividends or bonuses. While you may want to use the payouts to renovate the kitchen, your spouse may think you should re-invest the money for better returns.
There are no wrong answers here, but not agreeing on what to do with your investment dividends could be cause for a fight.
When planning your shared portfolio, be sure to discuss how you will handle any dividends you may earn. One idea could be to transfer a portion of your dividends into a savings account, and re-invest the rest. Another could be to split the dividends among yourself proportionately, to do with as you please.
Tip 6: Split portfolios according to risk appetites
He believes in going big or going home, while she believes in a slow and steady approach.
Or maybe you believe high-growth startups are the key to success, while your partner prefers to to rely on traditional proven growth sectors.
If you can’t agree on how much risk to take while investing, consider setting up two portfolios instead: one featuring more volatile products with higher projected returns, one composed of stable investments with more conservative projected returns.
Each of you decide what percentage of your budget you want to put into each portfolio. (But don’t be petty and put 100% of your budget into the portfolio you believe in, and nothing in the other.)
This way, the party who has a higher risk appetite won’t feel held back, while the more cautious party won’t have to deal with unwanted stress. More importantly, you both can enjoy increased chances of spectacular returns from the more adventurous portfolio, while also being cushioned by the more conservative one.
Tip 7: Start sooner rather than later
There’s nothing but benefits in having time on your side. As long as you’re investing correctly (i.e. not dealing in speculation, shady investments or outright scams), compounding interest will grow your money and brighten your financial future with every passing day.
The more time you give it, the more you’ll reap eventually. It’s a well-known principle, but somehow people find it hard to believe.
So let us show you what we mean by comparing these two portfolios.
A) $100 every month for 20 years at interest of 6% per annum
B) $250 every month for 10 years at interest of 6% per annum
Which portfolio, A or B gives you more money at the end of their respective investment periods?
Here are the returns:
|Portfolio A||Portfolio B|
Convinced? Now, go grab your partner and show them this article!
Read these next:
Dollar-Cost-Averaging vs Lump Sum Investing In Singapore: Which Should You Choose?
4 Investing Tips I Learnt The Hard Way That All Beginners Should Know
CPF Investment Scheme (CPFIS): Guide To Investing With Your CPF
Regular Savings Plan (RSP): What They Are And The Best Ones To Invest In
Straits Times Index: Top Blue-Chip Companies (And What They Do)
By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.