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investing exchange

Businessman and businesswoman sit at computers at desks facing each other.Getty Images/iStockphoto

Investing Exchange brings couples together with financial advisers in an exchange of opinion over saving and investment strategies.

In this exchange, we meet a Vancouver couple in their 40s who run their own businesses and have a net worth of about $2.5-million. With very different saving and investing styles, Angus and Maureen need a balance between peace of mind and getting the returns they need for retirement as self-employed people.

Angus and Maureen (not their real names) met while playing volleyball a decade ago. Married three years later, the Vancouver couple has managed to fit a lot in over the past 10 years. They own and operate two IT consulting businesses, have a place in Mexico, and are parents to two school-aged children. They are also well on their way to a comfortable retirement.

Getting there, however, means determining how best to direct their savings and investments. That's where the two are at odds.

Angus, 45, started investing in stocks when he was 18 and considers himself well-read on financial affairs. He's not only comfortable with risk but also sees it as the only way for the couple to get the kind of returns they need to be financially independent. Maureen, meanwhile, who's 46, has always been a saver, preferring to hold her money in a high-interest savings account and mutual funds sold by a family member.

The pair has a net worth of about $2.5-million, with a home worth $700,000 and $100,000 remaining on the mortgage. They have $500,000 in RRSPs, $100,000 in a tax-free savings account, and another $100,000 in a savings account. Neither has a pension.

Angus tracks the family's budget meticulously, breaking down monthly costs right down to how much they spend on things like haircuts and beauty products. Their total monthly expenses, including RRSP contributions ($833), TFSA contributions ($917), RESP contributions ($417), and savings for summer vacation ($200) are just shy of $9,000.

Where matters get more complicated relates to the couple's businesses. One is non-operating and has $400,000 in cash, while the other has $250,000 of investments in equity ETFs and $150,000 in a high-interest savings account. Angus questions the tax implications of the company's investments.

More broadly, the two are trying to reconcile their differing approaches to money management.

Maureen describes her style as conservative. She lost some money in the dotcom crash, but she was younger then and didn't have a family to provide for; now, with young children, she's more comfortable with low-risk investing. Stocks just don't feel safe. She says that, although Angus is more of a risk-taker, he is by no means reckless.

"He's more interested in investing and more confident," she says, noting that he makes most of the financial decisions in consultation with her, and she trusts him.

Angus, meanwhile, says he has set up his RRSPs with a structure of about 85-per-cent stocks, 10-per-cent bonds, and 5-per-cent cash.

"I feel we need to get our risk profile as high as possible, because we have time on our side," he says. "By not investing in the stock market, you're taking more risk. The average returns [with lower-risk investments] is likely close to 7 per cent, so if you're not taking advantage of higher returns you're putting yourself at greater risk [of not being financially secure during retirement].

"I watch my fees and invest in stocks and ETFs with the future in mind," he adds.

Still, he wonders if one of them needs to adjust his or her money style so they can stay on track for a secure retirement.

Sophie Blais-Yalbir, certified financial planner at Calgary's WealthCo Financial Advisory Services, says that Angus and Maureen have so far handled their difference of opinion by having open discussions. She also notes that the couple are "very moderate" in their spending and have been smart to set up a "pay yourself first" strategy through their monthly RRSP and TFSA withdrawals.

However, there's much more they could do to align their views and meet their financial goals in a mutually suitable way.

Although Angus is comfortable riding the market's ups and downs, Ms. Blais-Yalbir says it's important that both he and Maureen have peace of mind about their investments.

"I'm concerned about Angus's overall strategy of taking as much risk as possible," she says. "I normally caution clients to take on only as much risk as they need to or care to. Taking on risk for risk's sake doesn't make sense, in my opinion. Any time you add risk to a portfolio you had best have a decent expectation of return to compensate for the volatility.

"We've found that our clients experience positive results with a 'sleep at night' factor when the there is less volatility within their portfolios," she adds.

Ms. Blais-Yalbir notes that the couple's investments are lacking alternatives, pointing to her firm's model that's based on diversification.

"Our philosophy would suggest including alternative assets," such as private mortgages and direct ownership in real estate, in addition to traditional stocks and bonds, she explains.

As far as the tax implications of the couple's business investments go, Ms. Blais-Yalbir says the best strategy would be to work with an integrated team consisting of an accountant, lawyer, tax specialist, and certified financial planner to identify opportunities and pitfalls. "Reducing the amount of taxes paid on your business or investment income can dramatically improve a family's ability to achieve their dreams, but not paying attention to taxes can lead to unforeseen nightmares," she says.

To gain a more solid financial footing, Ms. Blais-Yalbir has a few other suggestions.

For starters, Angus and Maureen should determine how much money they want to make certain they have – this pot containing "safe money" – and what they can afford to lose, which can be considered "play money."

"In order to make both sides happy it would make sense to determine what they absolutely need to protect," Ms. Blais-Yalbir says.

Angus may also wish to reconsider his expectations on returns.

"I would suggest that over time, a 7-per-cent rate of return is not a bad result," Ms. Blais-Yalbir says. "To the contrary, if you can sleep at night and are not at odds with each other, it's a great result."

She has a note of caution for the couple, too, seeing as how their ability to earn income is dependent solely on themselves.

"They've created a wonderful lifestyle, but that can all change in a flash," Ms. Blais-Yalbir says. "Beyond an investment strategy, I would ask them to consider risk-management strategies, such as life, disability, and critical-illness insurance. They're young and have a very young family and a long life ahead of them."

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