Avoiding Joint Financial Disaster


How do your investments stack up as a couple?Are you married or living with a significant other?  Do you both own investments?  If you do, are you aware of your partner’s investment strategy?  While many people understand the risk of holding too much of one particular type of investment in their own portfolio, they sometimes forget (or are just unaware) that as a couple they may also be over-exposed to certain stocks or other asset classes.



It’s All In The Mix


If you are uncertain what we mean when we speak of asset allocation, it refers to the mix of stocks, bonds, cash, and gold or other commodities that together make up all the investments in your portfolio.  For more information on asset allocation and why diversification among the various asset classes is important read, “Diversification: A Safe Money Machine.”


Unintended Consequences


Here’s the risk: If both partners own the same investments, or if the investments you select hold many of the same stocks or even bond types, you could be far more at-risk to a market downturn than you realize.


Company Z


For example, say each of you own the same dollar amount in a different mutual fund made up of stocks.  As you investigate what stocks make up each fund, you discover that in spite of owning different funds, each of you has 10% of their holdings invested in a particular energy company—Company Z.  As a couple, and in an extreme event (say Company Z goes bankrupt), your joint exposure to market risk in Company Z could therefore create a 10% overall loss to your combined portfolios.  This compares to a 5% loss you would face as a couple if only one partner were invested in Company Z.


At Risk With Yourself?


The idea of trying to diversify your investments individually by buying a variety of stocks, mutual funds, or exchange traded funds is an important one.  However, equally important is to check in with your partner and compare investments to avoid accidental overexposure to certain stocks.  It should also go without saying that if you own multiple funds in your name, it can pay off big time to compare the holdings in each fund.  In any case, you can be far less diversified than you realize if two or more funds hold a big chunk of the same investments.


Do The Research


If you are uncertain how to check for specific investments in mutual or exchange-traded funds, you can usually find the top 10 holdings at sites like Yahoo Finance or in the research section of your online brokerage.  For a more detailed listing, go the fund’s website and look for a complete list of holdings or see the fund’s prospectus.


If you enjoyed today’s post you may also want to read:

Eyes Wide Open: Avoiding Joint Disaster
The Money Quiz

For other posts on investing see the links on our Investing Ideas page.



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