As financial advisers, Shannon Dalziel and Justin Bender are confident they know a lot about how to counsel do-it-yourself investors, but now they have a new challenge – advice for the head-over-heels.
"We have just returned from holidays with some exciting news to share – Justin and I are engaged," says Ms. Dalziel, who works with her fiancé at PWL Capital Ltd. in Toronto.
Since Mr. Bender popped the question, the two have been contemplating what it takes for do-it-yourself investors to work together when they move in together. Investing can be emotional – just look at emotions among investors in the run-up to the Scottish referendum. So if it's something big and personal, like love, how do you deal with this?
"Having different investment styles can definitely complicate the relationship," Ms. Dalziel says. "We'd suggest sharing your thoughts with one another and coming to a happy medium."
It's okay for partners in a relationship to have different investment styles, as long as they come to an understanding, she adds. "We don't see a huge issue. We found that we had different risk tolerances when we became a couple, and they slowly met in the middle."
Finding this balance can actually be easier for new couples than for more established individuals who get together, Mr. Bender adds.
"In reality, when most couples marry, they do not have significant assets immediately anyway, so being too conservative or too aggressive at the onset is not as detrimental as when there are significant investment assets involved," he says. New couples "should probably be more concerned with paying off any debts they may have and saving up an emergency fund."
Nevertheless, couples should anticipate and be prepared for when the markets and the economy head south. "It definitely can't hurt to have your investment strategy in writing for both of you to refer to when the markets behave badly. It doesn't have to be anything too complicated," Mr. Bender says.
A written document of this type should include a page that states the couple's targets for asset allocation (what kinds of securities they want to put their money into) as well as the thresholds for rebalancing the portfolio and perhaps a list of securities that each partner approves.
"This would be similar to a discretionary investment policy statement (IPS), except that the two of you are the sole portfolio managers," Mr. Bender says.
This is different than a prenuptial agreement, which allocates existing assets and lays out who gets what should the couple's property and fortunes grow. An IPS focuses on how you want to manage your investments and holdings.
What happens if one partner comes into the relationship with a lot of assets and investment experience and the other has less of both?
"It's really important that the spouse with the assets and experience involves the other spouse in the process," Ms. Dalziel says. "If something were to happen to the spouse running the portfolio, the remaining spouse would be put in a stressful position at an already stressful time."
Their own circumstances are not like this, she adds. "In our situation, each of us knows where all the assets are, how they are being managed and how to access them."
They have pooled their investment accounts into one portfolio. "We find that this simplifies our lives and reduces the amount of trades that need to be placed," Ms. Dalziel says. They still retain separate bank accounts, "though this may change," she adds, and they each keep their own credit cards.
Whether or not to pool your investments "depends on the incomes of each spouse," Ms. Dalziel says. "We're generally able to split our incomes more or less equally, so there's not a huge tax advantage to having a separate investment account. Consolidated portfolios can be more tax-efficient, and performance reporting, benchmarking and rebalancing are also simplified.
Couples just starting out should make sure they have proper insurance and disability coverage, Mr. Bender says. While it's not a joy to contemplate these things, it's a good, unemotional and important move.
If the relationship goes south and the couple gets divorced, it's not too complicated to divide a joint portfolio. "However, both spouses' overall financial plan and strategic asset allocation must be reviewed, as these are both likely to have changed."
What they do with their money after planning and mapping out their joint philosophy really depends on how much they have and what they're going to need in the near and medium term, Mr. Bender says.
"Depending on their need for liquidity, they should certainly have cash put aside in high-interest savings accounts," Mr. Bender recommends. It's also a good idea to make use of tax-free savings (TFSA) accounts, obviously to avoid taxes, and for important purchases and special occasions.
"We're investing in our business and in our RRSPs for the long-term. We will use the TFSAs to save for mid-term needs (like our upcoming wedding.) For short-term expenses, such as vacations, we usually just park the funds in a high-interest savings account," Ms. Dalziel says.
First-time home buyers should also look at deploying the RRSP home buyers' plan, which allows each partner to borrow against their own RRSPs for a first down payment, he adds.
As a couple's portfolio grows to around the $50,000 mark, they should look at purchasing index funds to cut their investment costs.
"Usually the next obvious step would be Canadian-domiciled ETFs [exchange traded funds], but if the couple is more comfortable staying with index mutual funds, there is nothing wrong with that," Ms. Dalziel says.
The important thing for couples starting out as DIYers is to say yes … to being rational about investing together.