Investment Styles Can Cause Strains

By David McEwen

Tuesday 14th August 2001

For a couple, reaching a decision to spend less than they earn and invest the difference is an important event. However, reaching agreement on how to invest can be just as significant.

One partner, often the man, tends to be keen on taking risks in the pursuit of riches, while the other has a more conservative leaning. This can cause friction, as well as poor investment returns.

Research conducted in the US using data from 35,000 households found that men trade shares 45 per cent more often than women. Unfortunately, men also earned 1.4 per cent less per year than the women.

These differences in trading patterns and performance may be related to differing attitudes and thought processes between the genders. Psychological studies have found men tend to be more results-oriented, risk tolerant and competitive than women. Such forces can lead to dangerous overconfidence in some men, while encouraging some women to be overly cautious.

Here are some tips on achieving a balance between two investment styles.

- Discuss concerns

Consider whether your investment situation is making you feel stressed or upset. If so, discuss these concerns with your partner. One way of dealing with the subject would be for each partner to write down a couple of positive points about the way the other handles the family finances and investments then add those that are causing concern.

- Schedule meetings

Finding time to discuss money with your partner can be difficult when time is already short juggling careers, family and social activities. However, the importance of good investments is such that businesslike meetings need to occur. The best way is to set aside some quiet time, say once a month, to review performance and raise any issues.

- Avoid arguments

Arguments often occur because one partner blames all the investment mistakes on the other. While it may make one partner feel better, it doesn't make the lost money come back. Rather, it is better to focus on making changes that will ensure the same mistakes don't get made in the future.

- Agree on goals

Start with agreeing on your lifestyle goals and when you want to achieve them. That will dictate how much return on your capital you will need. If one partner fancies a punt on technology shares and the other thinks government stock is the way to go, then it might be worth finding a compromise, say major corporate or utility shares.

- Separate responsibilities

An investment portfolio is not a single entity but is made up of a variety of asset classes and securities. First, the portfolio should be allocated to low, medium and high-risk assets. Once this is done, and the weightings agreed on, the risk-tolerant partner may be able to take responsibility for investing the relatively small amount of the portfolio aimed at high risk assets. The conservative partner can manage the less volatile and lower risk assets.

It is also worth remembering that portfolios, like relationships, can change over time. Investors in their 20s are likely to be (and should be) more risk tolerant than those in their 40s. A risk-averse partner may become less so over time if attractive returns are achieved without undue peril to their capital.

As a successful investor once said, "People may be risk-averse but they're generally not profit averse".

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. He is commissioned by the New Zealand Stock Exchange to write an independent personal investment column. He can be reached by email at davidm@mcewen.co.nz.

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