Investing basics: what your spouse must know about investing
Could your partner handle these issues without you?
Within every household, most couples divide and conquer.
Maybe you do the laundry and your spouse always handles the trash. Or perhaps they're in control of all things yard-related, but you always do the grocery shopping.
Handling a household's financial affairs is another one of those tasks that usually falls to one spouse or the other. Of course, there are some couples who are equally engaged in the process of budgeting, bill-paying, saving, and investing. But in many families, those jobs are the exclusive domain of just one partner.
If you're hunting around Morningstar for information, there's a good chance that you're that person in your household. Perhaps you had hands-on work or educational experience with financial matters, or maybe you simply have a greater aptitude and interest in financial affairs than does your spouse.
The key risk you run in single-handedly managing your family's financial affairs, however, is that you could leave your spouse out of the loop. If something were to happen to you, would he or she know how to manage the family nest egg? And even if you expect that your spouse will have to turn to a financial adviser for help when you're gone, would he or she even know where to look for advice?
Even if you're fit as a fiddle, make sure that your spouse would know how to handle the following issues if something were to happen to you.
1. Who to contact
Your first step in leaving your spouse well prepared is to draw up a list of your important financial contacts: financial planners, insurance agents, accountants, and attorneys. Include their names, phone numbers, and e-mail addresses, and also provide a brief overview of what they've helped you with.
2. Where to find everything
After that, delineate what assets you have and where to find them. Even if you're not an investment junkie, you're no doubt holding a number of different accounts scattered across several different financial-service providers. You may have it all straight in your head, but it could seem like a confusing mess to your spouse. Try to streamline your investment accounts as much as you possibly can. Your partner will have a far easier time managing the family nest egg if something should happen to you.
Maintaining a relatively short list of investments has another positive side effect: You'll have fewer moving parts to monitor. It also lessens the chance that you'll wind up with a portfolio that behaves a lot like an index fund but costs a good deal more.
In addition to streamlining your portfolio, it also makes sense to develop a filing system that makes sense to both of you. Start by creating a folder--either paper or electronic--for each separate account, and be judicious about what papers you store in each. (Stash: Brokerage and fund statements, along with trade confirmations. Trash: Annual reports, prospectuses, and marketing literature.) Once you've done that, create a master directory, listing all of your accounts and account numbers (don't forget life-insurance policies), the names and phone numbers of any individuals you deal with at various financial institutions, and any URLs and passwords you need to gain access to your accounts. Store this information in an ultrasafe place, such as a safety-deposit box or in a password-protected file on your computer, and let your spouse know that it's there.
3. How you're doing
Even if you don't inform your spouse of every investment decision you make, you should take time periodically to give him or her the big-picture view of where your finances stand. How much do you have overall, and how much of that is liquid (that is, in cash or in securities that you could easily convert to cash)? Are you on track to meet your shared goals or do you need to increase your savings rate? Deciding how much to spend each month and how much to save and invest is a basic decision for every household, and both partners should be involved.
Related article: Investing basics: budget for a life together
4. Which assets to tap first
Some of your assets can be tapped at any time, while others may carry penalties and tax costs if your spouse withdraws the money prematurely. To prevent your spouse from making a serious and costly mistake, it pays to clearly delineate which of your assets are liquid and which are not. As a general rule of thumb, you'll want to keep at least six months' worth of living expenses in highly liquid securities. If you're retired and drawing upon your portfolio for living expenses, aim for three years' worth of living expenses in highly liquid accounts.
5. Where to go for help
If you've been an investment do-it-yourselfer but expect that your spouse will have to seek outside help in managing your financial affairs after you've gone, it can't hurt to lay the groundwork for that possibility. Scout around for financial planners who share your investing philosophy and have served clients with needs similar to yours.
6. How to learn more
Even if you expect that your spouse will use the services of a financial planner or adviser after you're gone, he or she will still need a basic grounding in money and investing. No, a financial book isn't beach reading, but a handful of commonsense investment books impart a lot of information in an easy-to-digest format.
A version of this article appeared on Morningstar.com.