How to develop an investment strategy when you have different views on risk

When two people connect on a romantic level there is no guarantee they will be a perfect match in other areas of life. It’s not just about one person liking pasta, and the other preferring Asian fusion. Couples can hold very different views around investing, and it may often be driven by how each person feels about risk.

A mis-match on risk tolerance is surprisingly common. Fidelity Investments' 2021 Couples & Money study found two out of five (40%) couples disagree on how much risk they're comfortable taking with their investments[1].

However, looking on investing as a team sport can work in a couple’s favour. The Fidelity research revealed that couples who make money decisions jointly tend to communicate better, have more confidence in their partner’s investment decisions, and are more likely to agree on retirement plans.

Fortunately, there is plenty you can do to get on the same page with your significant other so that neither person feels like they are taking on too much risk – or missing out on valuable returns by playing it too safe. Here are five ideas you may want to try in your relationship.

Talk about goals

In our busy lives, it’s easy to get caught up with work, ferrying the kids around, or doing stuff around the home. But it’s important to take time out as a couple to talk about your shared goals. From here it can be easier to shift the conversation to how different investments can help you achieve short, medium and long term goals.

Get to know your investment horizon

Setting a timeframe for shared goals matters. As a rule, with long term goals, you can generally afford to take on more risk. This is because your investments can have more time to recover from any market ups and downs.

A savings account for example may be useful for short term goals of less than say, three years. You won’t get the benefit of capital growth but your money won’t be subjected to any market fluctuations.

If you’re looking at long term goals of 10-years-plus, investments like shares, property or exchange traded funds offer a combination of capital growth plus tax-friendly returns. Yes, you can experience losses in some years. Over time though, compounding returns can do more of the heavy lifting to help you reach your shared target.

Aim for a diverse mix of investments

For couples, a diverse portfolio with money spread across different types of investments can let you mix and match so you can each have a bit of your preferred investments.

Diversification also makes sense from another perspective. It’s an easy way to lower overall portfolio risk and volatility while smoothing out overall returns.

Drip-feed your investments

Steadily drip-feeding money into investments – also known as dollar cost averaging, can be a handy strategy for couples who don’t see eye to eye on risk.

It can be a leap of faith for instance to agree to invest thousands of dollars in one hit in the sharemarket. In recent weeks, we’ve seen the Aussie sharemarket jump around a fair bit, and watching your shares take an overnight hit can be an “I told you so” moment when one member of a couple is risk averse.

Investing smaller amounts on a regular basis has the benefit that over time you’ll pay more of an average price for your investments.

Call in a neutral third party

Many Australians don’t need to pay for the advice of a financial planner to start investing. But third party advice can be helpful if you and your partner are at loggerheads about how to invest.

Be sure to look for an adviser who is licensed, and consider speaking to several different planners to find someone you’re comfortable with.

While all these strategies can help couples harness the power of two, don’t lose sight of the fact that being part of a couple doesn’t mean you have to combine all your investments.

Maintaining individual investments can mean paying more in brokerage and investment fees, but it may also give each person a bit more financial freedom. If you really can’t reach a middle ground on investing, maintaining a ‘yours and mine’ approach can help to maintain household harmony.  And sometimes that can be worth more than super-sized returns.