Can a couple invest in the same set of mutual funds?

In these repressive times, alliances are everything. You are undoubtedly working from home, spending more time with your spouse, and sharing everyday domestic duties with them. Does this collaboration apply to investments made by family members as well?

Do you see your portfolio as a standalone item or as a component of the whole? Maintaining a Chinese wall between a couple’s portfolios may result in the possibility that both have a comparable portfolio. Does that make financial sense?

Overlapping portfolio

Consider a scenario in which a husband owns three equity funds (A, B, and C) and his wife owns a different group of equity funds (D, E, and F). Diversification exists in this situation without a doubt.

Beyond a certain point, though, such variety is useless. The majority of the stocks in an equity large-cap index will be owned, let’s say if they jointly own six large-cap funds.

Additionally, it depends on the various types of equity funds they own. Owning two to three large-cap funds, for instance, is sufficient; however, exposure to midcap funds will free up space for two additional funds. The couple’s financial objectives will determine the number of things.

Furthermore, it involves not simply diversification (as was previously said), but also emphasis. When a couple holds 25 funds, they might not care if one of them performs poorly because it only makes up 4% of their whole portfolio. However, because they only own three funds, any underperformance has a significant financial impact on them. They, therefore, take the required step.

Sharing vision

This emphasises the critical question of whether the couple has a shared vision for achieving family objectives like retirement or a child’s schooling. They might recognise and evaluate risk as well as have personal investment preferences.

One would want a luxury retirement while the other might favour a modest one. Depending on the retirement lifestyle one opts for and how long the pair intends to work, the desired retirement nest will change. They must discuss it with their partner and come to an understanding.

Finding the best joint investing strategy will help the family prioritise its financial goals and divide them into short-term (like a vacation or a property down payment) and long-term (like retirement or the education of the children).

Two approaches

There are two methods to move toward it after you’ve done that.

For starters, they may individually pursue different objectives. For instance, the wife could use her salary to invest in a child’s education while the husband does the same for retirement. Even though their fund portfolios may overlap, it doesn’t matter because they are each pursuing different financial objectives.

This system works well when both parties are employed and desire to manage their finances independently. In turn, household expenses are taken care of by a combined bank account.

In the second strategy, the couple pools their resources and makes investments together to achieve a goal. For instance, if they are both saving for retirement, they would both hold three successful stock funds. When a guy owns funds “A” and “B,” his wife will invest in “C” to round out the former’s holdings. They will jointly prune the portfolio if there is an overlap.

Importance of focus

Furthermore, it involves not simply diversification (as was previously said), but also emphasis. When a couple holds 25 funds, they might not care if one of them performs poorly because it only makes up 4% of their whole portfolio. However, because they only own three funds, any underperformance has a significant financial impact on them. They, therefore, take the required step.

Additionally, by keeping a modest portfolio, you can monitor its performance and periodically get rid of underperformers.

Working with investment experts

To find the middle ground, you might occasionally require the help of an investment professional. You can get assistance with your financial planning from a licenced investment professional with a solid track record in the appropriate field. The pair will then be able to prioritise their costs and determine how much money they need to save as a result.

Final Thoughts

A couple must agree on their financial objectives. Portfolio overlap is not a problem if they are each pursuing distinct objectives individually. However, their portfolios must work in perfect harmony when investing toward a shared objective.