Wedding event debt can sink any newly married couple’s investment dreams. “Either opt for a smaller, less extravagant wedding, or come up with a plan to pay off the debt as quickly as possible,” financial adviser Rhonda Sherwood says.Justin Hart/Getty Images/iStockphoto
Forget learning to share medicine cabinet space after tying the knot. Today's newlyweds need to know how to merge their investment strategies and portfolios, too.
Not that they always get it right, says Rhonda Sherwood, a ScotiaMcLeod wealth adviser in Vancouver. She says she gives investment advice to clients who have recently walked down the aisle and finds herself having a – how to phrase this delicately – pragmatic view of uniting love, marriage and assets.
"I worry I've become jaded," admits Ms. Sherwood, who is not married herself. "But after 20 years, I've seen everything."
That includes a recently divorced client who quickly jumped into a common-law marriage with a man who insisted on having his name on her investment accounts. In other cases, clients discover (too late) that their newly beloved is deeply in debt and needs to be bailed out before they can even think about building a portfolio together. And don't get her started on people who hide investments and savings from their spouses. That happens. A lot.
The truth is, newlyweds who are just starting their lives together make investment errors that can take months or years to fix. Here are some of the most common missteps.
1. Avoiding the subject.
According to Heather Franklin, a fee-for-service certified financial planner in Toronto, not talking about money is the No. 1 mistake newlyweds make when it comes to investing. "That's not an option. Open and honest communication has to extend from the personal to the financial aspects of their lives," she says. Although money is hardly the world's most romantic topic, it's important. A good heart-to-heart will reveal whether one partner has more assets and debts than the other and even how each person feels about retirement planning or socking away money for a mortgage.
2. Starting behind the eight ball.
Debt. It's the four-letter-word that can sink any newly married couple's dreams of investing for the future. Ms. Sherwood says that as more couples get hitched later in life and pay for at least part of their weddings themselves, debt can derail investment planning for years until it's paid off. "I can't tell you how many clients have to take money out to pay for these big weddings. It drives me insane," she says. Either opt for a smaller, less extravagant wedding, or come up with a plan to pay off the debt as quickly as possible so you can move on to new goals, such as saving for a mortgage, kids' educations, travel or retirement.
3. Squandering wedding cash.
Asking for money used to be a faux pas at weddings. Not any more, particularly as many couples already own blenders, cutlery and stacks of towels. Unfortunately, too many couples coming into a wedding cash-gift windfall end up blowing it. Instead, couples would do better to park the money in a liquid money market account or high-interest savings account until they decide how to use it. Pay off debt first, then build an emergency fund or set it aside for a mortgage down payment. Start the marriage in the black.
4. Keeping one spouse out of the loop.
Not everybody is interested in talking to investment advisers and reading spreadsheets. That's fine, but here's what often happens: One spouse takes over the investments and leaves the other person in the dark. Both people need to maintain a relationship with advisers and brokers, even if that just means sitting in on a meeting once a year. That way, if the unthinkable happens and the marriage breaks down or one spouse dies, the surviving one knows where to find the accounts.
5. Procrastinating.
That last-minute trip to Florida come February is enticing, but sticking that money in a tax-free savings account for retirement? Not so much. Unfortunately, many new couples believe that because retirement seems so far away, they can start saving for it next year. Or the one after. Only problem: That year never comes. It pays to start now though. Just sticking away $100 a month in something that earns 3-per-cent interest will grow to become $58,519 in 30 years. Procrastinate for 10 years, and the total drops to $33,012.
6. Having too much overlap or not diversifying enough.
When people enter a relationship with their own investment portfolios and savings, it can lead to redundancies and confusion. Suddenly, the couple is contending with six, seven or eight accounts, or their newly combined investments are too heavily invested in equities, small cap stocks or one industry. Sit down with an adviser and find ways to consolidate or reallocate funds. "You have to look at it as a family portfolio now," Ms. Franklin says.
7. Merging too quickly.
Ms. Sherwood says she's not as concerned about redundant portfolios as she is about clients protecting their premarital assets at the beginning of a relationship. She's all for working toward new financial goals together right away, but particularly if it's a second marriage and one person is going into it with a large portfolio or a mortgage-free home, it's important to keep premarital investments separate – at least for the first five years. She advises going to a lawyer and drafting an agreement outlining that what you bring into the relationship stays yours.
"Protect what you've built to this point," she says. "No one wants to think about a marriage breaking up. I get that. But if you're being ignorant or give access to your money to someone you've only been with a short while, that's how you lose your wealth."