Newlyweds typically have invested countless hours to have their dream wedding. But they often don't spend enough time planning financial investments for their future together.
Couples who get educated about investing, set goals and understand their risk tolerance can increase their chances not only of being able to afford another honeymoon one day, but also of wanting to spend it with each other.
Gregory Aloia advises newlyweds to obtain some basic investment knowledge by taking an adult-education course or reading books on the subject as a couple. This will help them become better investors and tune out some of the well-meaning but potentially damaging investing advice they get from family and friends or an unscrupulous adviser, says the Philadelphia financial planner.
But knowing the investment ropes isn't enough. Couples also need to understand their own finances and each other. They can start by identifying the sources of funds they could invest, such as wedding gifts, an inheritance or excess cash flow, Mr. Aloia says. And to identify their excess cash flow, they'll need to first understand how they spend their money on a month-to-month basis.
On a broader scale, Mr. Aloia encourages couples to share their "money stories" and discover what attitudes about money and investing they bring to the marriage. "Those attitudes can affect your decision-making regarding investments," he says.
Down to Specifics
With all that knowledge in hand, newlyweds can start salting away cash. Ben Barzideh, a wealth adviser at Piershale Financial Group in Crystal Lake, Ill., says couples should establish an emergency fund that would cover three to six months of expenses, which could be held in a liquid money-market account. He then recommends that couples put at least 10% to 15% of their combined gross income into an investment account and/or savings account such as a 401(k).
Couples should set specific investment goals and spell out how they might achieve them, Mr. Aloia says. For example, if they are saving for retirement and want to reduce their income taxes, they may want to make use of tax-favored vehicles such as individual retirement accounts and 401(k) plans, he says.
For any goal, couples should look to match their investments to the time frame of what they hope to achieve, says Ron Florance, managing director of investment strategy at Wells Fargo Private Bank in Scottsdale, Ariz. "If you're saving for a house down payment in the next three years, don't invest aggressively and hope for a nice run," he says. That's taking too much risk.
Rather, a couple may want to invest in certificates of deposit that can earn a higher interest rate than their checking account for short-term goals, suggests Annrose Isaac, a financial planner in Westwood, N.J.
For goals that will take five years or more, Tracy Burke, a financial planner in Harrisburg, Pa., recommends couples invest in a "diversified mix of stock and bond low-cost index mutual funds representing broad U.S. and international markets."
In This Together
Whatever their goals, newlyweds should consider their combined investment accounts as the "family portfolio" rather than as a set of individual accounts, Ms. Burke says. Doing so can help them achieve the desired balance and diversity more easily.
Communication is critical. When a couple Alan Moore knows got married, the wife turned all of the investing responsibilities over to her new husband, only to later learn he had invested their entire portfolio in equities. When the market took a downturn, she lost sleep and demanded they move entirely into cash.
"Newlyweds need to talk about their risk tolerance," says Mr. Moore, a financial planner in Milwaukee. He was able to convince the wife not to sell out of the market completely, but reduced the amount of stocks in her retirement account to move it in line with her risk tolerance.
Couples should also be sure to update the beneficiaries on their retirement plans and insurance, says Mr. Barzideh. "We have seen more estate plans get wrecked because people were careless with their beneficiary designations," he says.
And while it is common for couples to have one spouse act as the money manager, it is extremely important that both are aware of the couple's investments so they're not left in the dark if they divorce or a spouse dies, says Judith Ward, a Baltimore financial planner for T. Rowe Price Group.
"Even if it's not your interest, you have to know what's going on," she says.
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