When you decide to get married, you are making a commitment to spend your life with someone. That means you are going to need to have a joint retirement plan. If you have a risk-averse spouse who does not want to take investment risk, tensions can mount on how to invest your money
There is no simple solution to get a risk-averse spouse on board with investing. Like all things in a marriage, it requires constant communication and discussion. A financial plan built by both partners should reflect the worries of the risk-averse spouse and the goals of the spouse who is keener on investing.
In this article, I’ll share how my wife and I got on the same page about investing, despite having opposite views on risk and investing.
Money is a major source of conflict
Money is one of the most common sources of conflict in any relationship. When many people have “money fights,” it is because they have “money problems.” Common sources of money-related conflict include;
Debt.
Spending habits.
Resentment when one person earns more money than the other person.
Resentment when one person dominates the financial decisions.
What if both people in the relationship are debt-free, have high and relatively equal incomes, lots of savings, and excellent spending habits, is it possible to still have money-related conflicts?
Absolutely.
Money never stops being a source of tension. This is especially true if money is a trigger of anxiety (like it is for me). Once you move past having true money problems like overspending and debt, it’s natural to focus on things like how to invest your money to build wealth in the long term.
If each partner has opposite views of how to save and invest, money related tension is inevitable. I would classify this as a “good problem to have” but a problem, nonetheless.
That is the problem my wife Trish and I faced when we combined our finances and bought a house together. We had a fair bit of disposable income, and we could not have had more different views on what to do with that money.
I wanted to invest it all and even borrow money to invest even more
I spend my spare time writing about personal finance, so you might have guessed that I had a more aggressive investing mindset. The way I look at it is relatively simple, the more wealth we can accumulate, the more financial security we will have.
I had some difficult financial struggles in my early 20’s and ever since then have made it a mission to move towards financial independence.
After formal education, receiving my Master’s degree in finance and economics, and informal education of reading every personal finance book I could get my hands on, I came to the rather simple conclusion that there are only three ways to create wealth.
Own a business.
Own income-producing real estate.
Invest in the stock market.
We were both salaried employees in our late 20’s with lots of disposable income, and at the time I had not started my side business, so in my mind, it became clear that we needed to focus on investing as much as possible in the stock market and real estate as quickly as possible.
She wanted to hide all of our money under our mattress
Let’s just say Trish did not share my worldview. When we met, she had all her money in a checking account. I’m talking tens of thousands of dollars sitting in a checking account earning 0% interest and getting devalued by inflation each year.
She has a generous defined benefit pension through work and no debt, and in her mind, that was plenty. Anytime someone at the bank tried to discuss different investment options with her, she would shut it down immediately.
She had no trust in anyone working in the financial services industry. She was afraid that if she invested her money in anything that was not guaranteed, she would lose her money.
If it were up to me, we would have been investing every penny and even using leverage to magnify our returns. If it were up to her, we would stash every penny inside of our mattress. We were both convinced that our view was the correct view and that the other person was out of their mind.
Compromise
Like everything else in marriage, the only workable solution involved a good deal of compromise.
The initial compromise was an offense/defense strategy.
I would focus on our “playing offense” by investing in index funds inside our tax-sheltered accounts.
She would focus on “playing defense” by making additional principal payments onto our mortgage.
Just because I was playing offense, and she was playing defense did not mean we were not still continually talking about the merits of each approach. I wanted to normalize the idea of investing in the stock market, so I made sure we had frequent discussions about what our money was invested in and why.
As she saw our investment balance grow over time, she (slowly) began warming up to the idea of investing in something risky.
One of her biggest concerns about investing in real estate was dealing with tenants. So, we struck a compromise here as well. We bought an income property, but to alleviate the concern of dealing with random tenants, we rented the house out to family members that we could trust and just so happened to need a new place to live after some significant life changes.
We were able to make a great deal and get the house significantly below market value, which I think is slowly warming her up to the possibility of further investment in real estate in the future.
The takeaway: If you have entirely different views on money and risk, start with some type of compromise that makes each partner a little uncomfortable, but that each can ultimately live with.
Focusing on our common goals
The next level of compromise on Trish’s part came when we had a detailed discussion of what retirement will look like for us. We both fortunate enough to have defined-benefit pensions at work. There was one problem, though; her pension was a lot more generous than mine.
Her pension had a retirement start date at 55.
My pension had a retirement start date at 65.
We both agreed that we would like to avoid a situation where I am working a decade longer than her.
That was my segway to connect the idea of investing to have greater value beyond “getting rich.” After running some numbers, I showed her that if we got more aggressive investing, I could easily make up the shortfall of my pension if I took it early at 55 rather than waiting until 65.
This was the motivation she needed, and from that point on, she has become much more comfortable investing in the stock market.
The takeaway: If you want to move your risk-averse spouse to embrace taking more risk, find a way to connect investing to a goal that is important to them. In my case, Trish did not care about “being rich,” but she did care about spending our retirement together. Investing provides us a way to accomplish that goal.
Today we are investing more than ever
In 2020 there have been two events that have made me confident that we will continue to invest more of our money in the future.
We experienced our first market crash.
Our first child was born.
Experiencing a market crash for the first time
Trish’s greatest fear when we first started talking about investing was if the stock market crashed and we lost all of our money.
I explained to her that since we invest in the entire stock market through index funds rather than individual stocks, the only way for us to “lose all of our money” would be if every publically traded company went bankrupt. If that were to happen, the balance in our investment account would be the least of our worries because the world as we know it would be over.
The rational part of her brain believed what I was saying, but the emotional part was still afraid.
Earlier this year, the stock market lost a third of its value in 3 weeks. This is the exact type of scenario that would have induced a panic attack in Trish 6 years ago.
How did she react when this “worst-case scenario played out?” She did not even notice. The best thing a nervous, long-term investor can do is not check their investment balance often and not follow what happens in the stock market on a day to day basis.
We sit down and review our investment portfolio in detail once or twice a year. Which means the market had recovered by the time we took a close look.
She had her first taste of extreme market volatility, and she never even knew it. That experience has made her much more comfortable with investing.
The birth of our son and shifting priorities
The second significant event that has led Trish to embrace investing in 2020 was the birth of our son.
While Trish does not care much about making herself “rich,” she does care deeply about doing everything we can for our son.
One of the ways we can make life easier on him is to ensure he never has to struggle financially.
We opened up a college fund and started investing the day we brought him home from the hospital.
We made it a priority to invest more than we would need to ensure we have an inheritance to leave to him and any children he may have one day.
The takeaway: The motivation to become wealthy should not be about having fancy cars and a big house. It should first and foremost be about security, not only for yourselves but for the people you care most about. Knowing that strong “why” will make it easier for a risk-averse spouse to embrace investing.
Start small and focus on your goals
If partners in a relationship have opposite views on how to manage money, conflict can arise.
Like with all things in a marriage, if you are in a disagreement with your spouse, you probably need to start with a compromise. Find a way to meet in the middle.
If you want your risk-averse spouse to get more comfortable investing, make sure you understand what he or she values most. Then find a way to connect investing and building wealth to those things they value. If their natural inclination is to avoid risk, you need to help them discover a powerful “why” to make it worth it to them to embrace risk and start investing.
In our situation, we had two “why’s” that made investing worth it.
To enjoy our retirement together.
To provide financial support to our son.
So, if you want to figure out how to encourage your risk-averse spouse to embrace investing, figure out their “why.” That could help your finances and your marriage.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.