Sometimes partners find that they have different attitudes to risk. This post shows several examples.
Once again I’ve invented a fictional panel from discussions with people I’ve interviewed, and this time I’m asking them to tell you what they told me about partners differing in their attitudes towards risk.
Panelist 6: My husband is a CFA [a Chartered Financial Analyst, an investment professional], he’s very conservative, very analytical. That doesn’t mean he’s a good planner. He sits on money, then invests in a big lump sum. I’m more frugal as a spender, but better at regular saving. It took some time for us to communicate successfully as a couple – “How could you do this, it’s our money, yes it really is a big deal” – so now we talk before anything big.
Panelist 7: I’m the husband! And I disagree that I’m not a good planner. In fact, I think I’m a great planner. The thing is, I take my time to make a good plan, then I implement it. That sounds like sitting on it for a long time and then being impulsive, but it isn’t. It’s just being rational and careful. That feels slow to my wife, who is much more emotional. We’ve discovered that we’re close in most of our likes, but we’re different in how we resolve issues, even though we come to the same conclusion. So we try to control what we can, and not what we can’t.
Panelist 8: I’m advising my parents. My father is 74, my mother 73. I worry about whether I’m giving them good advice. My mother is the financial one, with all the documents. She’s the one who wants to know if they’ll be OK. My father is the one who wants to do it all himself. He says his friends all have great money-making investments! I worry about how to be respectful of my father and still reassure my mother.
Panelist 9: I can sleep at night with risk. Maybe I shouldn’t be able to, but big market fluctuations don’t bother me. I make my own stock-selection decisions. I hate to say this to all of you, but my philosophy is that if your spouse is risk-averse, you just don’t tell her. I’m not diversified – 80% in real estate and individual stocks, and of course my real estate is by definition not diversified. It’s been great fun, even though I’m not that good at it – maybe it’s time to start putting money in diversified vehicles. Sometimes you take risks in one area of life and not in others – my risk-taking hasn’t been in life, it’s been in investing.
Panelist 10: My husband is building a plan, and as it builds I start to worry about: what if we aren’t healthy, what if we don’t have enough money, and so on? He does the financial planning. He’s a risk-taker – at least I think so – but I really don’t know! He’s very comfortable with it – I just want to know if there’s a big loss.
Panelist 11: In our case, my wife is much more risk-averse than I am. Her attitude regarding the kids (the kids come first, our future comes a distant second) doesn’t help: the fact is, we need a risky asset allocation to get to where we want! Her own savings before she started working went into a tax-sheltered account 100% in equities; now (to her surprise) its value has doubled. I told her that’s the reward for the risk she took – “If you had been looking at it every day it would never have survived!”
Panelist 12: In my case it’s not individual retirement money I’m talking about, it’s family money shared by multiple branches of our family. It’s clear we all have different degrees of tolerance for risk, but we all have to live with the decisions made by one of us, because that’s how it’s been set up. We’ve talked about it, and we keep saying to one another that we’ll raise the subject at the next family meeting, to see if we can get a discussion going about risk tolerance. But I have to say, I don’t have high hopes of success.
Once again you see not only differences, but how nuanced attitudes are, rather than just big clear-cut differences. And you see how many other factors come into play. Making an explicit decision about how much risk to take is a complex subject, precisely because so much else comes to mind, and because most of us have never had to think about it. You see in this panel the differences between those who think about it a lot and those for whom it’s not exactly an everyday matter. And yet ultimately a decision has to be made, because ultimately your money is going to be invested in some mixture of assets, and even if the way it all adds up is accidental rather than clearly thought through (let alone agreed to by both partners), it’s still a decision, even if it’s an implicit rather than an explicit decision.
So, in the next post we’ll examine approaches to coping with our differences.
We’re different human beings, with different views on life and what’s important and what’s risky, some more tolerant of risk and some more fearful. And it can be tough to reconcile our differences — particularly if we’ve never shared them.
I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.