It takes two to invest

Decide how to initiate an investment along with your spouse based on the goal priority

Do you and your spouse jointly take investment decisions for your family? In most households, investment decisions are taken by one individual, which can have negative consequences. In this article, we discuss why it is important for you to take joint investment decisions.

Spousal involvement

There are two reasons why joint investment decisions are necessary. One, involving your spouse will mean he/she is aware of all investment decisions you take. This is especially important if the decision-making individual meets with an unexpected death. . Two, taking joint investment decisions improves harmony in the family. It does not matter whether your spouse is employed. One of the major issues relating to marriage is finances. And, most financial issues are about spending decisions. You may be a spendthrift, while your spouse may be thrifty. Such differences can be moderated if you can take joint investment decisions for your family.

But what if one of you is a risk-averse investor and the other is a risk-seeking one?

Harmonious allocation

You can decide how to initiate an investment decision based on your asset class or goal priority. For instance, you can initiate all bond-related investments required for your family’s goal-based portfolios if you are risk-averse. Your spouse, if risk-seeking, can initiate all the equity-related investments. Alternatively, you can initiate investments relating to your family’s high-priority goals and your spouse can take care of the family’s low-priority goals. This division is based on the fact that high-priority goals require more bond investments and less equity investments.

Then, there is the issue of asset allocation. If you like to take risks, you may want to invest more in equity. Your spouse, likewise, will have views about his/her preferred asset class. An easy way to work around this is to fix the goal priority for the investment you are pursuing.

If the goal is of high priority, you should follow the floor-upside rule. In this portfolio structure, bond investments act as a floor and equity investments provide the upside. Suppose you and your spouse are making an investment decision to fund your child’s college education 10 year hence. Suppose the estimated cost of education at a preferred college is ₹2 crore and the second-most preferred college is ₹1.2 crore. Your monthly investments in bonds should be such that you and your spouse accumulate ₹1.2 crore in bank fixed deposits in 10 years. The balance of your monthly savings should in equity, set up to accumulate ₹80 lakh (₹2-1.2 crore) in 10 years.

For goals that are not high priority, you and your spouse may choose to start with an asset allocation of 60 per cent equity, 40 per cent bonds, and then adjust based on the time horizon for the goals and the quantum of your monthly savings.

The writer is founder of Navera Consulting. Send your feedback to portfolioideas@thehindu.co.in

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