This is particularly relevant when investing as a couple, as you may both have different ideas of what you are trying to achieve.
In this article, I’ll break down the top five things you need to discuss with your partner to get you ready to start your investment journey.
Topic 1: Why are you investing?
Too often when it comes to investing, we jump straight to the type of investments we want to invest in. Whilst this is an important discussion, it is better to start with why you are investing.
A good analogy is if you intended to build a table from scratch. In this example, you wouldn’t start with the tools you needed to build the table. You would instead determine what you wanted the table to look like and how you wanted it to function. It’s only after you have worked out the outcome you want to achieve would you consider what tools will help you to achieve it.
You may be investing for a short-term goal such as paying for school fees or upgrading your house. You may also be investing for longer-term goals such as potentially retiring early or reducing your hours and living on your investment income. Whatever your goal, agreeing upfront with your partner what this money is for can save you some headaches in the future.
Topic 2: How long do you have to invest?
When it comes to selecting investments, I cannot overemphasize the importance of timeframes. As a general rule, the longer you have to invest, the greater the return you can expect from your investment.
This is because investments that traditionally have grown the most, tend to be the most volatile in the short-term. That means they go up and down all of the time. If you need to access your money in a short-period, say in the next three years, investing in assets that are volatile could mean that your investment hasn’t gone up in that time.
Understanding how long you have to invest and how flexible you are about changing these timeframes will help you to agree on your investment strategy with your partner.
Topic 3: How comfortable are you that the investment might go backwards?
It’s no secret that investments carry risk. When most people think about risk, they think about the concept of losing the entirety of their money, but risk also means the concept that your money may go backwards.
A well-diversified portfolio reduces your risk that you will lose your entire investment, but the risk that it may go backwards in value (particularly in the short-term) is very real.
Having the discussion about how comfortable you are with this will prepare you when this does happen. For example, I talk to a lot of clients who want to invest their home deposit in order to grow it. The first question I ask them is “how would you feel if your home deposit went down in value?”. Understanding how comfortable you are with this risk means you can make better decisions about what investments suit your goals.
Topic 4: What skills do you have to assist you to invest?
Investing can get complex and mistakes can cost you a lot of money. Understanding what skills you have and whether you wish to seek further education or outsource to a professional is an important conversation to have.
I talk to a lot of couples who have bought an investment property because they are familiar with property and not shares. Remember, just because you’ve lived in a house and understand what you like, doesn’t mean you necessarily have the skills to pick a great investment property.
Having a plan about what skills you’ll need or have and what parts of the process you will outsource to a professional will help you to develop your investment strategy.
Topic 5: Who should own the investment?
Determining who or how you should own the investment is a lot more complex than you may realise. When it comes to owning investments, there are a lot of different options including:
- Owning it in one of your names
- Owning it jointly
- Owning it as part of a trust
- Owning it as part of a company
All of these options have their pros and cons and really depend on your circumstances and what you are trying to achieve. It’s important to get this right because there will be tax consequences and potential risks to your investment. Understanding how best to structure your investment and who should take charge of the investment is an important conversation to have.
So there you have it, my top five things you need to discuss with your partner before investing. There is a lot to discuss and work through here but doing so will mean that you are set up correctly from the start and are less likely to make costly mistakes. As always, with anything finance, if you are unsure you should reach out to a financial adviser to assist. We do this every day and can help you navigate the process.
Brisbane financial planner, Ben Brett of Bounce Financial specialises in providing financial advice to young professionals who have bought their first home and are wondering what comes next.