My husband and I are constantly at odds over how we spend and save our money. There always seems to be a difference of opinion. I wanted to participate in the 401(k) plan at work, but Tom says we are already saving too much. I am not secure about the future and think we need to save more and invest more aggressively. I know you are not in the marriage counseling business, but what advice would you have for us?
You are wrong. I did not think I was going to be in the marriage counseling business either, but after 30 years of dealing with couples and their finances, I have found myself in the marriage counseling business more often than I care to think.
One solution to your problem is quite simple. Write down your goals and your objectives. Then write down how you are going to accomplish your goals and objectives.
Who knows what the market and the economy will bring over the next year or two, but over the next 25 to 30 years you would be nuts not to keep the IRA compounding going.
I view a married couple as a committee made up of two individuals. If you have ever worked with committees, you know how difficult it is to get any decisions made. Obviously, everyone has their own point of view and their own experiences from which they draw. My job with an investment committee is to create a document to help mange the money on which all can agree.
Actually, this is somewhat like the Bill of Rights or the Constitution. Obviously, our founding fathers could not all agree on every aspect of the new government. However, they were smart enough to put in written form the framework of how the government should operate. They agreed to serve the Constitution for the benefit of the whole, not their specialized interest.
I deal with investment committees, corporations, endowments, churches, individuals and couples. We have a document from which we work called an investment policy statement. It basically delineates what types of investments we are gong to use, how much risk the portfolio will be subject to, what our target rate of return is and the purpose of the investment. The investment policy statement becomes our "Constitution." It helps us manage the money based on a consensus. When new people are added to the committee, we do not have to start all over again.
It is surprising to me that very few corporations or endowment funds initially have an investment policy statement when we start to work with them. It is very rare for couples to have such a document. In only one case can I remember a couple coming to me with a written investment plan that they had done on their own. Based on the amount of money they save relative to their income, this couple is probably my most financially successful couple. They are successful because it is their plan, not mine.
There are many other advantages to writing out what you are trying to accomplish and creating an investment statement. Let's say you are going to invest $5000 a year in your 401(k) and put 80 percent of that into an equity index fund because that is what your plan calls for. Then the market takes a dive and you get nervous. Knowing how you plan to invest and why it is the right thing to do will help you stay on track during tough times.
Sounds a little like you are having your own constitutional crisis. We hope there is no "Civil War" in your future. Take a lesson from Franklin and Jefferson. Write down what you are going to do, get mutual agreement on the major points, and then let your family financial plan be the guiding light. It is easier than the present method.
Paul D. Reasoner CFP, CIMA
These are the opinions of Paul Reasoner and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
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