Portfolio Confidential

I’ve been dating a lovely man for the past couple of years, and I suspect he is planning to propose to me on Valentine’s Day. I’m a little nervous since this would be my second time at the altar, and there were money issues in my first marriage. We haven’t really talked about our attitudes towards money. What suggestions do you have?

Ten percent of all marriage proposals happen on Valentine's Day! In my 20+ years working as a portfolio manager I’ve seen a lot…especially when it comes to couples and money. What goes on? It’s all over the map. But one thing we can all agree on is that it’s easier (and a lot smarter) to talk about finances before the wedding than after.

Based on what I’ve learned from working with couples, I’ll share my five top tips:

 #1 Respect individual goals and objectives

Even after we become a couple, we still have our own unique investment objectives and constraints. Similar to how we might each have strong views about the way things should be managed around the household with laundry, pets, and kids…a compromise of some sort is usually the way to go.

One couple I worked with had been together for nearly 40 years and their finances had been merged for most of their married life. But when they were approaching retirement, they developed quite divergent views as to how to they wanted their investment portfolio to be managed. The wife wanted to spend the wealth they had accumulated within their lifetime, and she was particularly interested in travelling. Conversely, the husband’s objective was to maximize the return on their portfolio so they would be in a position to leave as much money as possible to their adult children.

After an in-depth discussion we arrived at a compromise. Although their overall investment portfolio would have an asset allocation of 60% equities and 40% bonds, and most of their money would be managed the same way, we allocated two of their individual accounts, representing about 10% of their overall assets, that would be managed according to their specific personal objectives. The wife’s special retirement account would be invested more conservatively so she could withdraw a regular income to spend on travel and other interests. And the husband’s special account would be invested 100% in growth stocks with the objective of saving for their children and grandchildren’s future.

 #2 Allow for “the urge to splurge”

Another couple I knew, both senior executives, had been happily married for over 30 years. At the outset of their relationship, they recognized that they were both spenders - sometimes on each other and sometimes on themselves. As their relationship became more serious and they started to navigate how to combine their financial life, they had one big concern about money: neither wanted to have to ‘get permission’ from their partner to spend on the things that were important to them. After much back-and-forth they found a solution – each would have a fully discretionary spending amount ($1,000 per month but this varies over time according to their incomes and the prevailing inflation rate.) If one of them feels stressed out and needs three massages at The Four Seasons one month? No problem and no discussion. If the other wants to treat her best friend to a lavish dinner out? No questions asked.

 #3 Check Your Financial Statements

Five years into their happy marriage, things changed from a financial perspective for a young couple I had as clients. Up until that point, the wife had always been the main source of the family income and, as she told me, “I make all of the financial decisions. I am only interested in investing in my home and my family. I work really hard and everything I do, I do it for us and our son.” But for a couple of years her husband had been investing in his business, upgrading materials and equipment. Unfortunately, he had made many unilateral decisions without consulting her, pulling money (lots of it) out of their joint accounts, and these decisions were putting her/their savings at risk.

Another woman talked with me about her philosophy about money - “I like to spend, but this has never been a problem because I’ve always made my own good money. Earning my own money and feeling independent, this is core to how I manage my finances.” Imagine her surprise when she found out that her husband had been making multiple not-small investments in his friend’s venture capital ideas – one of them was a cool half million bucks! To fund these ‘opportunities’, he had been taking the money out of their joint investment account. To make it worse, none of the investments had paid off, although the more important issue was that he had never asked.

In each case, the women only discovered the withdrawals after many months had gone by and significant percentages of the joint account were gone forever. If they had been checking statements more regularly, the amounts taken without their knowledge would have been much smaller, and they could have intervened sooner to re-set the financial ‘house-rules’.

 #4 Speak up

This one comes from my personal experience: I grew up in a very traditional British household. My dad was somewhat knowledgeable, but he talked as though he knew everything about investing. My mom pretended to know nothing but she regularly bought Canada Savings Bonds. Mom’s strategy was boring but she preserved all her wealth whereas, unfortunately, my father put everything in Barrick Gold just before he died, and that stock dropped by 70%. My mom got nothing from his RRIF. In my home, women did not speak about money.

If you come from a cultural background that either explicitly or implicitly encourages women to keep quiet about financial matters, recognize this and open up the conversation. Seek professional counselling if needed. Speaking up might make all the difference to your future financial self.

 #5 Get a prenuptial agreement

One 43-year-old woman I worked with had no children from her first marriage, then decided to marry a man who was divorced, and was paying spousal support and also child support for his three children.

Perhaps not surprisingly, many people entering later-in-life marriages are proud of whatever wealth they have accumulated and would prefer to control their own money. She told her husband-to-be that her interest was to have a long-term, loving relationship and not a financial relationship. She had worked long and hard to build her nest egg and, importantly, this provided her with a really strong sense of security. Her preference was to continue earning her own income and making her own financial decisions.

Some partners might feel threatened by this, but her guy agreed, and they signed a marriage agreement. Perhaps counterintuitively she felt like having a prenup allowed them to keep the relationship focus on romance, and they never ever argued about money. Which is a nice, as the romance books put it, HEA for Valentine’s Day. (Happily ever after)