Author Topic: Balancing portfolios as a married couple  (Read 5664 times)

MamaKate

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Balancing portfolios as a married couple
« on: August 07, 2012, 01:49:09 PM »
Hi All,

My husband and I are nearly consumer debt free and are getting serious about figuring out investing.  I'm curious how others approach it as a married couple.  We have joined all our finances and are committed to viewing our investments, income, expenses, debt, etc as a joint entity - ours, rather than his and mine.  However, I understand that retirement accounts cannot be held jointly.   

He has about $40,000 in an old 401K that we plan to roll over.  I have around $20,000 in a pension I plan to cash out (former teacher) and in a couple of poorly invested IRA's.  He works full time, while I work very part time and stay home with our children.  Moving forward, the majority of our retirement investing will be done by him (even if we invest most of my salary, it's still less than 1/4th of our total investment).   

We're planning to open a Vanguard account and will likely diversify in 3-4 funds (still working on the details).  Should we each diversify our own accounts across the 3-4 funds that we choose?  Or, should we put my money into 1-2 fund and his in 2-3 funds? 

Other married couples who combine finances, do you look at how your portfolio is balanced as a couple or individually? 

Any advice is appreciated!

igthebold

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Re: Balancing portfolios as a married couple
« Reply #1 on: August 07, 2012, 03:27:39 PM »
For all our finances, it's two pairs of eyes looking at a single financial system. The only splits are relics of things like company 401(k). Sounds like that's about where you are.

For us, it's simpler and more comfortable to assume all incoming streams of cash are joined into a single big stream as well, so we don't handle the income streams as if they're different. They all go into The Checking Account, and from there, they're transferred on a schedule.

I'd say do whatever is easiest to manage. Look at your bigger diversification picture and what it takes to get there.

FactorsOf2

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Re: Balancing portfolios as a married couple
« Reply #2 on: August 07, 2012, 05:03:18 PM »
My husband and I are 100% with the joint finances approach, so we definitely balance the total portfolio w/out regard to which funds wind up in whose account. 

For example, we're 90/10/10/10 in US stock / Int'l stock / REIT / Bonds  and we have 3 'buckets' available: Joint taxable account, his IRA, hers IRA. For tax efficient placement we would up with:

Bonds in hers IRA
REITs in his IRA
Int'l Stock in Joint account
US Stock in all 3 accounts

IMO you're moving in a good direction with the 3 or 4-fund portfolio at Vanguard.  Here's a good resource if you haven't already seen it:http://www.bogleheads.org/wiki/3-fund_portfolio

tooqk4u22

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Re: Balancing portfolios as a married couple
« Reply #3 on: August 07, 2012, 05:32:57 PM »
For me and mine we are joint - sure retirement accounts aren't legally joint but we look at it as all one pot and balance diversify accordingly, but admit that due to the various accounts I don't do it as often as I should.

sol

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Re: Balancing portfolios as a married couple
« Reply #4 on: August 07, 2012, 05:35:20 PM »
My wife is slightly more conservative than I am when it comes to asset allocation, so her 401k choices are a bit different than mine but it averages out to a good place.  We talked about and agreed upon an allocation for our taxable account that we can both live with, and we each handle our Roth IRAs separately.

Even with combined finances, having two earners in the family allows you to shelter more income from taxes.  The Roth IRA limit is $5k per person, so as long as your income is at least $5k I would recommend you both hit that limit.  The 401k and pension plans are a bit of a different beast, so just be sure that you're taking full advantage of whatever options are available to you both as individuals, not just a couple.

In our family, she does most of the college savings for the kids and I do most of the early-retirement savings to the taxable account.  About every six months we mutually decide on any course corrections to our overall plan.

MamaKate

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Re: Balancing portfolios as a married couple
« Reply #5 on: August 15, 2012, 08:37:44 PM »
Thank you all!  It sounds like we're on the right track thinking about it as 1 combined "pot" overall.  It makes sense in hindsight, but I was surprised to learn we couldn't have joint accounts.  Now off to read that bogleheads article and lots more on here before I make a final decision about where all of the $ is moving to!

RussellMania

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Re: Balancing portfolios as a married couple
« Reply #6 on: August 16, 2012, 11:11:16 AM »
@sol:
Having two separate incomes does not have tax advantages for IRAs. As long as you are married & filing jointly, you can contribute to your own IRA from your spouse's income, even if you do not have any income. See the link below:

http://www.investopedia.com/articles/retirement/03/021903.asp#axzz23jCRZjX0

With Vanguard funds specifically, most have an "admiral class" which have even lower costs. Most of these have a minimum of $10k. There may be an advantage to have 1-2 funds in each IRA until you can meet these minimums in each account. After that, I don't really see that it matters; whichever is easiest to keep track of.

manchops

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Re: Balancing portfolios as a married couple
« Reply #7 on: September 04, 2012, 10:44:32 PM »
I would say that if you have tax advantaged accounts, use those, personal asset allocation be damned.

Example:

As a couple, you've decided that where you want to be is:

20% bonds
70% stocks
10% REIT

Bonds in this case are the worst on the tax front (not sure if I'm remembering this correctly, but stay with me. You can lookup specifics later).

That 100% needs to divvy into 3 accounts. Personal acct #1 & #2 & joint account. I'd suggest putting your worst tax performer (bonds in my example) into your tax advantaged accounts. This might mean that your entire personal portfolio is bonds and his is reit and some stocks. (or more likely 50% bonds 30% REIT, 20% stocks) where your stocks are all in your joint account which isn't tax advantaged.

This advice is based on some reading I did in the Bogleheads guide to investing, which is a good primer. I could be mistaken about this so definitely double check on what I'm telling you, but assuming you're okay with having a weird personal allocation and are seeking to minimize your tax issues.. it might be worth looking into.

ShavinItForLater

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Re: Balancing portfolios as a married couple
« Reply #8 on: September 08, 2012, 09:24:16 PM »
Not having joint retirement accounts is not really a big deal.  We've been managing our finances jointly since we were married 15 years ago, and that part has never been an issue.  The only inconvenience is that the account people often won't let me talk to them unless she is on the phone and vice versa.

If we were God forbid ever divorced, then I expect my retirement accounts (larger than hers as she is currently a stay at home mom) would be divvied up between us.  Short of that, I don't really see any worries about joint vs. individual distinctions.

To your question, the only reason I've had before to worry about which funds were in which accounts (our money is also almost exclusively at Vanguard) is that the individual shares have higher expenses (but lower minimum investment) than the Admiral shares--so if you can put all of one fund in one account to qualify for Admiral shares, that can help.  However they've lowered a lot of the Admiral limits, and the commission free ETFs also have the ultra low expenses along with very low minimums, so even that really isn't much of an issue anymore.  For 401k money a lot of times the choices are Institutional shares, and those generally have expenses on par with the Admiral shares.

The bigger issue in my experience would be which funds are in tax deferred vs. taxable accounts.  If you can concentrate the lower tax / lower dividend / lower income investments into the taxable accounts, and put the higher ones in the retirement accounts, you can reduce your yearly tax rate.