Many couples believe in togetherness, which can be a good thing. However, there are dangers to investing jointly that should give even the closest duos pause.
Remember the best-selling book Men Are from Mars, Women Are from Venus, by John Gray? The difference in the way men and women view the world has particular applicability to investing.
As many women know, men generally don’t lack confidence. They typically love the “action” of buying and selling stocks. The fact that trading increases costs, which decreases returns, doesn’t dent their enthusiasm for risk taking. I’ve found that male investors tend to seek the “big score,” often unaware of the “big risk” of losing a significant part of their invested capital.
Many women have told me that they find the markets pretty intimidating. Many men don’t admit their fear. They believe they can handle it.
A lot of men consider themselves to be very knowledgeable investors. Women tend to have a different view of their investing knowledge. A 2009 survey found that 73 percent of men professed having “a general knowledge of stocks, bonds, and mutual funds,” compared to only 40 percent of women.
Given these vast differences in attitudes, you have to question the wisdom of men and women investing jointly.
Women should be especially wary of deferring to their spouse. According to Bloomberg.com, a Merrill Lynch survey polled 1,000 people in 2005 to determine if men or women were better investors. The study found women made fewer mistakes, were less likely to become emotionally attached to losing investments, and engaged in fewer transactions than men. A study in the United Kingdom reached a similar conclusion. It looked at 100,000 portfolios. Those managed by women significantly outperformed those managed by men.
Aside from the potential strain on your bank accounts, investing as a couple can also have a negative effect on your marriage. I recall a meeting I had with a retired couple in late 2007, right before the market crashed. He wanted a very aggressive portfolio. She wanted a very conservative one. I described the worst losses for each portfolio and the difference in gains in the worst and best years over the past twenty years. He was attracted by the potential for big gains. She was terrified at the prospect of big losses. A huge fight ensued. They were unable to reconcile their different approaches to investing.
The commingling of assets in a joint account can also create legal issues. In many states, if assets are commingled, they become marital property, subject to division in the event of a divorce. Given the high divorce rate, especially for second marriages (60 percent), it would be prudent to keep separate whatever assets each party wishes to exclude from being up for grabs in a divorce. This includes inherited assets and assets either spouse brings into the marriage. The division of these (and all other) assets should be the subject of a prenuptial agreement.
The gender difference in attitudes toward investing should not obscure this undeniable fact: smart investing is based on two things—determining the right asset allocation (division of a portfolio between stocks and bonds) for you and investing only in low-cost stock and bond index funds.
This is true for all investors.
Dan Solin is a Senior Vice-President of Index Funds Advisors. He is the author of the New York Times best sellers The Smartest Investment Book You’ll Ever Read, The Smartest 401(k) Book You’ll Ever Read, and The Smartest Retirement Book You’ll Ever Read. . His latest book is Timeless Investment Advice.
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