Q&A: Strategies for overcoming a spouse’s bad investment decisions

Dear Liz: I tell people we lost a huge chunk of money in the Great Recession, but it wasn’t the downturn that did us in. My husband made some incredibly poor choices. I’m embarrassed to admit that he absolutely refused to listen to me and stop the financial self-destruction until I grew a backbone. I told him I’d divorce him unless he stopped. He has mended his ways and we’re still together (which is really for the best; we’ve been married almost 47 years).

He’s now being very transparent and prudent about investing, but we’re still looking at an underfunded retirement and I’d like to maximize what we have. We’re both 71 and still working (we’re self employed). Our home is worth about $800,000 and we owe $160,000. We have a rental nearby with about $100,000 in equity that pays for itself, but there’s no extra income from it. We have $210,000 in investments and $25,000 in savings with no debt.

I think more real estate would be a good investment vehicle for us, but we’d have to cash out some of our limited portfolio in order to purchase more. So instead, I make an extra principal payment equal to half the regular mortgage payment on each of the properties each month. I’m not sure if that’s the wisest thing to do, but I figure it’s still investing in real estate and will help us when we finally retire, sell and downsize.

Answer: Right now, the vast majority of your wealth is tied up in two properties in the same geographic area. A financial planner would want you to diversify, not double down by putting even more money into real estate.

And a fee-only financial planner is what you need to help you map out your future while easing the investment reins out of your husband’s hands. As we get older, we’re more vulnerable to fraud, exploitation and just plain bad choices. Your husband may have been scared straight for now, but he easily could make future decisions that could again imperil your finances. That’s especially true if his prior behavior was related to a gambling addiction. Not all problem gamblers choose casinos or horse tracks; some are day traders.

Given all that, you may want to consider purchasing a single premium immediate annuity when you retire. These annuities offer a guaranteed stream of income for life, in exchange for a lump sum. This would be income that can’t be lost to stock market downturns, real estate recessions, bad investments or fraud.

That’s something to discuss with your planner, along with ways you can use your businesses to maximize your retirement savings. (The self employed have many options, including a basic Simplified Employee Pension or SEP, solo 401(k) plans and traditional defined benefit pension plans.)

You can get referrals to fee-only planners at the National Assn. of Personal Financial Advisors, the XY Planning Network, the Alliance of Comprehensive Planners and the Garrett Planning Network.

Q&A: Can this marriage’s finances be saved?

Dear Liz: I am 64 and my husband is 63. I retired five years ago after a 30-year professional career. My husband is an executive and plans to work until 70. We own two homes and one is a rental property. Both our boys are successfully launched. Currently, 67% of our retirement money is in stocks and stock index funds. The rest is cash and IRAs or 401(k)s. I am working on re-allocating that 67% to safer investments, but our two investment advisors don’t even agree on what that would look like. And my husband does not want to leave potential stock market gains. Help! I think it is time to switch to more conservative investments. What do you think?

Answer: Many financial planners would say you should only take as much risk as required to in order to reach your goals. Exactly what that looks like depends on how much you’ve saved, how much you spend and how much guaranteed income you expect to receive from Social Security, pensions and annuities, among other factors.

Most people need a hefty exposure to stocks in retirement to get the returns they’ll need to beat inflation, but whether that proportion is 30% or 60% depends on their individual circumstances. Your current allocation could be fine if your basic expenses are entirely covered by guaranteed sources (Social Security, pensions, annuities) and you want to leave a substantial legacy for your sons. Or you could be way overexposed to stocks and vulnerable to a downturn if you’ll need that money for living expenses soon.

Your IRAs and 401(k)s are not investments, by the way. They’re tax-deferred buckets to hold investments. How that money is allocated among stocks, bonds and cash matters as much as how your other investments are allocated and should be included when calculating how much of your portfolio should be in stocks.

If neither of your investment advisors is a certified financial planner, consider seeking one out to create a comprehensive financial plan for you and your husband. The plan should consider all aspects of your finances and give you a road map for investing and tapping your retirement savings. You can find fee-only financial advisors through the National Assn. of Personal Financial Advisors, the XY Planning Network, the Alliance of Comprehensive Planners and the Garrett Planning Network.

Friday’s need-to-know money news

Today’s top story: Make renting work for your financial goals. Also in the news: Why this investment account is becoming more popular, what millennials get wrong about Social Security, and the common money regimen that can backfire and leave you worse off.

Make Renting Work for Your Financial Goals
Rent reporting can boost your credit score.

Why This Investment Account Is Becoming More Popular
Revisiting the brokerage account.

What Millennials Get Wrong About Social Security
Costly myths.

The common money regimen that can actually backfire and leave you worse off
When dieting doesn’t work.

Thursday’s need-to-know money news

Today’s top story: How to qualify for first-time home buyer benefits. Also in the news: The best investments you can make right now, how to bypass ATM fees while you’re on the road, and how financial therapy might help you get to the root of your money problems.

First-Time Home Buyer Benefits: How to Qualify
Perks for new buyers.

The Best Investments You Can Make Right Now
Planning carefully.

How to bypass ATM fees while you’re on the road
More money in your pocket.

Money problems? Here’s how financial therapy might help
Getting to the root of the problem.

Monday’s need-to-know money news

Today’s top story: 3 reasons to choose a college based on price. Also in the news: 3 times you can pay taxes with plastic and come out ahead, 7 tax changes investors should watch for when they file, and why you should check your hospital bill against your explanation of benefits.

3 Reasons to Choose a College Based on Price
Avoiding high debt.

3 Times You Can Pay Taxes With Plastic and Come Out Ahead
Building card perks.

7 Tax Changes Investors Should Watch For As They File
Investors face several new changes.

Check Your Hospital Bill Against Your Explanation of Benefits
Billing mistakes are rampant.

Q&A: When is it time to take the money and run to a new investment advisor?

Dear Liz: My wife and I are in our early 30s. She has a stock portfolio that has positions in 20 blue chip stocks purchased primarily in the last 20 years. It was set up by her family and managed by a family friend at a large brokerage. Recently, the family friend retired and transitioned the portfolio to a new team at this brokerage. They basically told us that our portfolio underperformed and only saw an average of 3% growth per year over the last 20 years.

The new brokerage team is recommending we gradually transition our 20 positions into a portfolio of 300 stocks that will mirror an index. They would harvest any tax losses to offset the capital gains tax that would otherwise be due. They will charge a 1% fee, and after several years, we will probably have a portfolio that is entirely small positions in a huge number of companies.

My gut reaction was that if they want to mirror an index, why not just buy an index fund with cash freed up from tax-loss harvesting? My wife really feels most comfortable doing whatever her parents recommend and is overwhelmed by what I call advanced investing but wants us to make this decision together.

Answer: If your wife is being charged a 1% annual fee, she should be getting a heck of a lot more than investment management. One percent is the typical fee charged by comprehensive financial planners who offer a wide array of services including retirement, tax, investment, insurance and estate planning. If her portfolio is more than $1 million, the fee probably would be even lower.

Another, larger problem is that the new team of stockbrokers probably does not have a fiduciary duty to your wife. In other words, they’re allowed to recommend a course of action that is more profitable for them, even if there are better-performing and less-expensive options available. That, more than anything else, should be motivating her to find a new advisor who is willing to be a fiduciary.

You can help in a number of ways, starting with the advisor search. The National Assn. of Personal Financial Advisors, the XY Planning Network and the Garrett Planning Network all represent fee-only planners and can offer referrals.

You also can encourage your wife to educate herself about investing, since (as you know) it’s not rocket science and she needs to know the basics to responsibly handle her money. Relying on her family’s influence has left her with an undiversified, underperforming portfolio — and delivered her into the hands of people who probably don’t have her best interests at heart. It’s time to grow up and take charge.

Finally, you can stop referring to it as “our” portfolio. It’s lovely that she wants to share it with you, but the money is hers and she needs to take ownership.

Q&A: Fear of a market meltdown has frozen this retiree’s money decisions

Dear Liz: I sold my home two years ago and still have not done anything with my gain of $200,000. It’s in a one-year certificate of deposit so at least it’s earning something while I try to figure out what to do with it. I’m 66, retired and have an IRA of $500,000 that’s invested in the market. I get $1,450 from that plus a monthly Social Security check of $1,750.

I know that my hesitation has to do with the crash of 2008. I know that things have recovered nicely but I just don’t want to feel like I did then, watching my money disappear. I don’t know if I’m the only older person who has this fear of riding it out again.

Answer: Few who watched their portfolios plunge in 2008-09 look forward to experiencing that again. But risk is inextricably tied to reward. If you want the reward of inflation-beating returns that stocks offer, you must accept the risk that your portfolio can go down as well as up.

And you probably do want that reward for a big chunk of your investments. Retirees typically need about half of their portfolio in stocks to generate the kinds of returns that will preserve their buying power and help insulate them against running short of money.

That doesn’t mean all your money has to be at risk. You still need to have a good stash of savings sitting in safe, liquid accounts to help you ride out any market downturns or emergencies. Financial planners often recommend that their retired clients keep six months’ worth of expenses in an emergency fund, and some like to see 12 months’ worth. Beyond that, though, your money probably should be working for you, not simply dwindling away to taxes and inflation.

If you find yourself unable to move forward with a plan for this money, consider hiring a fee-only financial planner who can help you review your options.

Tuesday’s need-to-know money news

Today’s top story: Think twice before paying for accident forgiveness. Also in the news: What to do when a fund in your portfolio closes, 5 Black Friday credit card strategies to add to your list, and how to get your finances in order.

Think Twice Before Paying for Accident Forgiveness
How much to pay for a mistake you might never make?

What to Do When a Fund in Your Portfolio Closes
ETFs are dying off.

5 Black Friday Credit Card Strategies to Add to Your List
Using your cards smartly this season.

How to Get Your Finances in Order
Prioritizing is key.

Friday’s need-to-know money news

Today’s top story: How to keep investing when the stock market trembles. Also in the news: What to buy (and skip) on Black Friday, financial companies are hiding complaints, and how age affects your credit score.

When the Stock Market Trembles, Fight Your Fear and Keep Investing
Keep calm and invest on.

What to Buy (and Skip) on Black Friday 2018
Putting your Black Friday gameplan together.

Financial Companies Rack Up Complaints, but Good Luck Finding Them
Companies are hiding their complaints.

What does age have to do with credit scores? Plenty
A lot more than you’d think.

Wednesday’s need-to-know money news

Today’s top story: What to buy and skip in September. Also in the news: 5 times to stash your cash and pay with plastic, what college freshman need to know about their student loans, and how to choose the best approach to managing your investments.

What to Buy (and Skip) in September

5 Times to Stash Your Cash and Pay With Plastic
Protecting your purchases.

What College Freshmen Need to Know About Their Student Loans
A whole new world of financial obligation.

How to choose the best approach to managing your investments


It’s all about streamlining.