It takes two to in­vest

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

The Hindu Business Line - - YOUR MONEY - B VENKATESH

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 riska­verse 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 goal­based port­fo­lios if you are riska­verse. 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 port­fo­[email protected]­

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