Nothing brings more fun to relationships than getting to do things together. From planning vacations, watching shows together, to even repainting your home. These are all joyous, but it is the no-laughing matter conversations and planning that make a couple’s bond stronger.
And it doesn't get more serious than when you get to talk about how you should invest, what types of investment vehicles you should try and what investments you should prioritise. It is even more dreading after you have combined your finances.
To ensure accountability, transparency, and shared responsibilities, you and your partner should choose to go for joint investments. This strategy will allow you to contribute equally to the family's growth and financial health.
This article will explore what you should do before combining investments and the types of investments to try as couples.
Before you combine investments with your significant other, you must determine what type of investor they're. Create an investor profile for them as you would for yourself. Here are things to look at when defining your partner's investor persona.
1. Their risk tolerance: This will help you determine the amount of loss your partner can stomach. High means they will be aggressive investors. You determine this by looking at their investment history.
2. Their goals and timeframe: Determine your partner's investment goals and how quickly they want to achieve them. More extended time frames will suggest they're moderate to Conservative investors.
3. Their Income and assets: Figure out your partner's income and assets base and your combined income and asset base. High income and assets may give room for a more aggressive approach with a subset of their investments. Or they may be comfortable and don't want additional risks.
Once you know what type of investor your partner is, compare their profile to yours. Are you the same type of investor or worlds apart?
If your profiles are alike, your investment journey will be less bumpy, and you can ride to the sunset together. But you will have to find some middle ground if they're not. In this situation, going for long-term and low-risk investments with relatively good returns will favour both of you. And the investment vehicles you pick should have joint benefits.
After establishing your investor profiles, you and your partner must work out a joint investment budget and align your investment goals.
An investment budget will help you decide how much you each contribute to your investments and the frequency of contributions. Aligning your goals will ensure you prioritise what matters the most; buying a home, educating your children, and planning for retirement.
Once you have that in place, you should try these five investment schemes that offer joint benefits and will bear both of your names.
This is a high-interest-bearing account that offers attractive interest rates. Deposits are held for a specific period of time and at a fixed rate. Most fixed savings accounts will allow for joint account operations.
You and your spouse can put your savings away in such an account and increase your deposits over time. Since most banks will compound interest earned on such an account, it is an excellent investment for long-term Conservative investors.
As you wait for the maturity of the investment, a bank may allow you to take loans against your savings. You can use such loans to meet current commitments like paying school fees and home maintenance.
While fixed deposits are safe investments that offer predictable returns, they come with their downsides. Apart from tax burden (withholding tax on interest earned), fixed deposits provide limited liquidity. You won't have access to your savings in case of a major family emergency, and there are hefty penalties on early withdrawals.
Real Estate is one of the best joint investment options available to couples. It can generate steady income, appreciate in value, hedge against economic uncertainties like inflation, and give you active investment control.
A Joint Real Estate investment between you and your spouse is a Matrimonial property. By law, this means you and your partner are granted the same rights to the property.
Some disadvantages to this investment vehicle include huge initial investment. It can take years before you realise ROI, high maintenance as everyday repair will eat into your cash reserves, and its illiquidity makes it hard to dispose of in emergencies.
Dividing real estate in case of divorce can also be stressful and often results in long court battles, which are expensive and time-consuming.
With a joint CDS account, you and your partner can invest in treasury bills and bonds. These Government-secured investments offer attractive and predictable returns and can be aligned with your short- and long-term investment goals.
For short-term investments, treasury bills can offer returns in as fast as three months, while treasury bonds can offer attractive biannual returns for up to 30 years.
You can reinvest the returns or use them to finance other family expenses, including school fees, home maintenance, and vacations, while keeping initial investments intact.
These investments are also illiquid and might cost you when they are terminated before maturity or transferred/sold to other parties. Separation of joint CDS accounts can be a tedious process in case of divorce.
Paying Insurance Premiums can be expensive, but you and your partner can cut those costs by combining your insurance policies. For instance, getting a family medical cover will have you pay less in premiums while protecting your entire family.
Joint Life insurance is another policy you can benefit from as a couple as you will pay significantly less than getting separate policies.
In case of a spouse's death, the living partner will receive an annuity from the insurance company. They can use this lump sum to educate the children, pay off their mortgage, or create a legacy for their lost loved one.
In case of separation, dividing up your insurance will involve a lot of paperwork and legal disputes. And depending on your insurer, it can lead to the cancellation of the entire policy, which can be costly.
Before buying joint-life coverage, talk to your insurer about your options in case of divorce.
This investment vehicle involves professional fund managers pooling money from various investors and investing the money in money market instruments and securities like stocks, bonds, and Money Market Funds.
This scheme is suitable for couples with a low-risk appetite looking for attractive short-term gains on investments. They also provide investment diversification you wouldn't enjoy if investing individually, especially investment schemes meant for institutional investors.
Returns earned by couples from UTFs can cover everyday family expenses or be directed to more solid and long-term investments they can have more control over, like SACCOs and real estate.
UTFs are also very liquid, and in case of divorce, investments can easily be liquidated and shared among the partners.
The main disadvantage of UTF is that the market controls it. Poor market trends mean low returns, which might force couples to dig into their rainy day funds to pay for their bills.
Investing as a couple will have its ups and downs. For it to work out, you must be open about all your investments and money issues. Transparency and honesty will help you solve problems before they arise and prevent them from spiraling out of control.
You and your partner should always create time at least once a month to look at your investment portfolio. Talk about it, and if needed, don't be afraid to change and adapt your strategies every once in a while.
If the combined investment strategies aren't working out, you should consider getting expert financial inputs or decide to invest separately. Choose the option that best suits you and keeps everyone content.