Author Topic: Risk-Averse Spouse  (Read 7815 times)

Myrmida

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Risk-Averse Spouse
« on: August 25, 2013, 12:15:47 PM »
Hi!  I have my retirement savings invested in a portfolio of ETFs.  I loosely follow the Canadian Couch Potato, investing in a variety of ETFs.  However, my spouse is not knowledgeable about investing, is not interested in learning and is afraid to invest in anything he thinks is "risky".  Does anyone have any experience with this (or advice even if you don't have experience)?  Right now, much of his retirement savings is just earning interest that is unlikely to keep up with inflation.

Tyler

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Re: Risk-Averse Spouse
« Reply #1 on: August 25, 2013, 01:07:20 PM »
My wife isn't particularly interested in investing, either, but I manage the family money as a whole (including her IRA).  I make it a point to tell her when I make any trades or transfers and why so that she understands what is going on and trusts me.  I listen to any risk concerns on her end and find ways to specifically address them.  And I've explained how our specific portfolio works (at a high level) to support our shared goals.

We talk about money fairly often, so we're definitely on the same page when it comes to finances.  All I can say is that makes things way easier.  So I guess my best advice is to start out by talking less about the nuances of portfolio strategies and more about shared financial goals. 

KMMK

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Re: Risk-Averse Spouse
« Reply #2 on: August 25, 2013, 03:12:33 PM »
Hi!  I have my retirement savings invested in a portfolio of ETFs.  I loosely follow the Canadian Couch Potato, investing in a variety of ETFs.  However, my spouse is not knowledgeable about investing, is not interested in learning and is afraid to invest in anything he thinks is "risky".  Does anyone have any experience with this (or advice even if you don't have experience)?  Right now, much of his retirement savings is just earning interest that is unlikely to keep up with inflation.

Are you the same person as me? Seriously, exact same here. I do a loose Couch Potato thing through TD waterhouse e-series funds. My husband is scared of "the stock market" so all his money is in GICs or savings accounts. It won't keep pace with inflation. But he doesn't care. He'd rather work longer and have a larger cushion built up before he retires. He is fine with doing it that way, even if it means working longer than I have to. He will also be getting some type of pension from work (though not full, because we'll retire too early.) but I will not have anything other than perhaps CPP.

This type of thing is why we manage our money completely separately. I know what he is doing and give him advice suited to his conservative nature. He doesn't really understand what I am doing, though I do discuss it with him, and he can look at my investments at any time. He just doesn't care about it. I track all our spending and networth separately and jointly.

We may retire at different times, which is fine with us. We work different amounts now, by choice, and will make our own choices about when to switch to half time work or retire completely. If you are okay with not necessarily retiring at the same time, both work, and have similar incomes, I'd recommend just doing your own thing. To me it's not worth worrying or arguing about. I'm confident in my own situation and know he will be fine as well.

Brian Romanchuk

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Re: Risk-Averse Spouse
« Reply #3 on: August 25, 2013, 08:09:46 PM »
One way of looking at it is to look at your total portfolio as a couple. It may be that you will average out to a more reasonable balanced portfolio. If the overall portfolio doesn't look too crazy, then there may be no need to cause too much stress over it.

Possibly you try expanding risk horizons with products that have a higher yield (corporate bonds, REITs, preferreds). This could then lead to higher dividend-paying equities. People can be more comfortable looking assets on a yield basis.

Garth Turner (Greater Fool) blog writes a lot about the risk of outliving your assets. He's fairly blunt, and could possibly be convincing to your spouse.

Myrmida

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Re: Risk-Averse Spouse
« Reply #4 on: August 26, 2013, 08:46:10 AM »
Thanks for the great advice.  I have generally handled the finances, but he has expressed discomfort with risk, stocks, etc., so I don't feel comfortable telling him where to invest if it's outside of his comfort zone.  It's only in the last few years that he's had much to invest.  We spoke briefly last night and I showed him a chart with different annualized returns, standard deviations and worst 12- and 60-month periods.  He agreed to think about specifically what level of risk he would be comfortable with, so that we can put together a portfolio for him.  Progress!  I might also see if the Greater Fool has some info on inflation eating up your savings.  We do need to sit down and have a talk about financial goals, though, as we haven't done that in a long time.  I just started reading Larry Swedroe's book about financial planning, so that might be a good springboard to discuss where we want to go financially.

Kazimieras

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Re: Risk-Averse Spouse
« Reply #5 on: August 26, 2013, 09:33:47 AM »
Hi!  I have my retirement savings invested in a portfolio of ETFs.  I loosely follow the Canadian Couch Potato, investing in a variety of ETFs.  However, my spouse is not knowledgeable about investing, is not interested in learning and is afraid to invest in anything he thinks is "risky".  Does anyone have any experience with this (or advice even if you don't have experience)?  Right now, much of his retirement savings is just earning interest that is unlikely to keep up with inflation.

I would present the other risk of not doing something. There is nothing wrong with not wanting a more risky investment, but there is a consequence, which is typically you need to save a lot more, or have to do with a lot less. Most people hide behind the "I am scared" curtain because it means you have to sit down and make some tough decisions. And pensions are nice, but pensions also have risk. To put it lightly, my dad had a very small Nortel pension, it is now much smaller.

Personally I would look at both of your assets and perhaps have your partner invest in more conservative investments and you take on more risky ones. Together, you end up with a well balanced portfolio, but individually you both look as if you're nuts :) It also helps build trust between the two, since the financial trust has to be there considering you are in this together. Garth Turner posted a great article on this a week ago:
http://www.greaterfool.ca/2013/08/18/for-bitter-or-worse/

MorningCoffee

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Re: Risk-Averse Spouse
« Reply #6 on: August 26, 2013, 12:48:37 PM »
If you like the couch potato style, you could suggest he reads something like "The Millionaire Teacher". If you haven't read it yet, the author strongly recommends index funds and not "risky" strategies. Learning about (simple) investing is the best way not to be afraid of it.

dragoncar

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Re: Risk-Averse Spouse
« Reply #7 on: August 26, 2013, 01:40:42 PM »
This stuff kills me because I hate the idea of giving investment advice.  In this case, you can make the most rational argument.  But if you had done so in 2007,  the result could have caused a lot of strain on the relationship.... So you basically have to be sure the other person almost independently comes to the same investing conclusion.  If your spouse would have freaked out in 2008, then maybe just let them keep their funds in super stable assets.  Then adjust your risk profile accordingly.

Myrmida

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Re: Risk-Averse Spouse
« Reply #8 on: August 26, 2013, 04:43:15 PM »
Thanks for the advice.  I agree, dragoncar, that pushing him outside his comfort zone could strain our relationship.  It would also feel wrong to me.

He's not much of a book-reader.  Now, if there were an action movie about ETFs, I could probably get him to watch that.  I'll try to turn him onto The Greater Fool, but I won't hold my breath.

I think I'm going to have to sit him down and force him to have a long discussion about finances.  It may bore him to tears, but I think he'll understand the need for it.  Maybe he'll be pleasantly surprised that I want his opinion.  He may have different financial goals than me, and we have to hash that out.

This is actually good because it's forcing me to articulate what I see as our financial future and then see if his views match up with mine.

Eric

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Re: Risk-Averse Spouse
« Reply #9 on: August 26, 2013, 11:52:28 PM »
It's always baffling to me when people decide that investing the stock market is too big of risk.  From my perspective, not investing in the stock market is easily a bigger risk than investing in it.  After all, the stock market always goes up.

http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/

KMMK

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Re: Risk-Averse Spouse
« Reply #10 on: August 27, 2013, 06:23:02 AM »
It's always baffling to me when people decide that investing the stock market is too big of risk.  From my perspective, not investing in the stock market is easily a bigger risk than investing in it.  After all, the stock market always goes up.

http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/

I think it's about knowledge and educating oneself. Some people just aren't interested in learning about the stock market, like my husband. Everyone has areas they avoid. I avoid car stuff. Sure, it's a big thing on this forum to do your own car maintenance, but I have zero interest in learning about it or doing it. Sure, I lose some money in the process, but I'm okay with  that. If someone chooses to avoid learning about finances that's their right.

Sorry, this wasn't intended as a snippy comment towards your comment (if it comes off that way at all). I totally get your point myself. It just resulted in some musing about how we all have blind spots.

DocCyane

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Re: Risk-Averse Spouse
« Reply #11 on: August 27, 2013, 06:58:57 AM »
He's not much of a book-reader.  Now, if there were an action movie about ETFs, I could probably get him to watch that.

Died. Laughing.

Rickk

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Re: Risk-Averse Spouse
« Reply #12 on: August 27, 2013, 07:34:33 AM »
It's always baffling to me when people decide that investing the stock market is too big of risk.  From my perspective, not investing in the stock market is easily a bigger risk than investing in it.  After all, the stock market always goes up.

http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/

I am not here to try to argue your premise, so much as to point out your argument is not convincing to those afraid of the market.  Those who are not investing are not eternal optimists!  Any number of items could be concerning them about investing!  Just to be a devils advocate - let me throw some items out there which could be of real concern to "non investors".

I don't think that article referenced is going to reassure the risk averse.  The stock market does NOT always go up.  Take a look from 1928-1952, or perhaps 1966-1984.  If your retirement / death horizon is in the next 20 years or so for those people, the market DID NOT GO UP.  I appreciate that the market is the only place to hope to get some returns right now, but trying to argue that the market is not a big risk is a disservice.  Sure the chances of those events lining up with your event horizon are not likely, and dollar cost averaging would mitigate that risk, but there is a very real possibility that those types of events can and will happen again in the future.  Lets assume the worst - I am 47 and invest all my money in the market and it follows one of the bad historical trends and I make 0% for 24 years - do I want to wait until I am 71 to get any returns?

Go ahead and shoot holes in what I wrote, but for the seriously risk averse, you need to answer these real questions in their head before you can make what appears to be irrational statements not backed up by the facts (over a period of time which may be important to them - not everyone can wait for the mythical "long enough" that the "always goes up" crowd wants you to wait).
Also notice how many articles make special mention of ignoring certain periods of time! but don't go into any real detail why this or that period should be ignored.

Then you have the questions about other countries (Japan, etc) which really have not had the same types of historical charts as shown - they really have not always gone up. 

Also - Does the risk averse believe that our country is going through fundamental changes?  Look at the current news, our government is going through an unprecedented time of constitutional destruction (illegal spying, holding people without charges, not allowing people to congregate, the interference with free travel, destruction of freedom of speech (only politically correct speech is protected, other speech is "hate" speech,  etc).  We have large institutions which clearly manipulate the markets, never loose money, and if they do the government bails them out.
If they have these underlying fears then that could also be concerning them that the historical record is not relevant for the future!

My point here is that it is best to educate risk averse individuals about the possibilities, and then let them choose their coarse of action.  If putting their money into the stock market is going to make them lie awake every night worrying, then it is a much better investment to put it into other areas. 

If you are a glass is half full person then the stock market is full of promise, if you are a glass is half empty person then the stock market is poised for a crash of epic proportions at any time!

aclarridge

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Re: Risk-Averse Spouse
« Reply #13 on: August 27, 2013, 09:07:48 AM »
It's always baffling to me when people decide that investing the stock market is too big of risk.  From my perspective, not investing in the stock market is easily a bigger risk than investing in it.  After all, the stock market always goes up.

http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/


I think I agree, but only if you're talking about the world stock market. Only then is there enough diversification to be reasonably sure aside from an apocalyptic scenario that over a couple decades you should be making money. Take a look at this: http://monevator.com/world-stock-markets-data/

Brian Romanchuk

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Re: Risk-Averse Spouse
« Reply #14 on: August 30, 2013, 12:05:55 PM »
I have a blog about the bond market, so I have an obvious conservative bias when it comes investing.  But I think you do need to be careful about blanket statements about the stock market (or even the bond market). The risk is that the market moves against the person immediately after they enter the position. If they are not experienced with losing money, there is the risk of them being immediately convinced you were wrong, and going back to whatever they were doing before. This is even if you will be vindicated after 5 years. As such, you need to manage expectations down, which makes it easier to get a positive surprise.

There is a lot to be said for slowly averaging into positions over time (like dollar-cost averaging) so that there are no immediate large negative shocks, and a person can get used to the process. Even if that is suboptimal, it is better than sitting in TBills for 40 years.

Le Dérisoire

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Re: Risk-Averse Spouse
« Reply #15 on: August 30, 2013, 12:38:00 PM »
If your spouse is the kind of person that is concerned with his social status and the like, tell him that investing in 'high-interest' saving accounts and GIC is a thing for poor and middle-class people (and your grandma). It's kind of actually true and it will catch his attention so you can talk more about finance.

The same trick can be used to dissuade a person to do an unnecessary luxurious spending. When my girlfriend has a sudden rush to buy something luxurious in order to improve her social status, I sometimes tell her that she is behaving like a poor or middle-class person. Rich people (read 'mind-rich') do not feel the need to show off and actually became rich by putting aside the "I deserve it" mentality.

I know it sounds elitist and condescending. It's because it is.

Myrmida

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Re: Risk-Averse Spouse
« Reply #16 on: September 03, 2013, 10:59:35 AM »
Thanks for the advice, everyone.  I like the idea of slowly averaging into positions over time.  We talked a bit over the weekend and he's opening up a bit.  It turns out to be less that he's absolutely risk-averse, and more that he lacks knowledge and confidence, so I'm going to work on that as we develop a financial plan together.  I am a proponent of diversification, and I have bonds in my own portfolio, although stocks still make up the majority.  My hope is that diversifying will reduce the impact if and when one market tanks or stagnates for a long period.