How to Match Your Risk Tolerance With Your Spouse

There are lots of ways to talk with your partner about your risk tolerances and come to an agreement that makes both of you happy and your finances safe.

When it comes to money and marriage, most people assume one partner will be the risk-averse penny-pincher, and the other will be the fun-loving big spender. In reality, many marriages feature partners who fall on either end of the risk spectrum — or somewhere in between. If you’ve ever finished watching a romantic comedy and thought how ridiculous all those characters are, that’s because they are. Even if you’re the more cautious partner, it’s important to talk about money and come to an agreement about how to manage it together.

By bringing all of your financial goals and needs into the open, you can find ways to accommodate each other’s needs and goals. Even couples who have very different spending styles can learn to work together to achieve their goals. Nobody is as risk-averse as Hollywood would have you believe or as careless with their cash as those films suggest. You probably aren’t even as frugal or extravagant as you think you are. This means that if you’re planning to marry someone whose risk profile differs from yours, you probably need to reassess your attitude toward financial risk before tying the knot.

What is financial risk tolerance?

Financial risk tolerance refers to how comfortable you are with taking on risks when it comes to investing or choosing a career path. Risk-tolerant people can handle investing in volatile stocks and would rather take a big gamble and lose big than take a small bet that’ll pay off a small amount. Risk-averse people, on the other hand, don’t mind taking on extra work or making sacrifices now if it means they’ll have a more comfortable life in the future. They might be more likely to invest in conservative stocks or choose a career that guarantees a steady paycheck over one that pays well but has a high risk of failure.

How to determine your financial risk tolerance

There’s no foolproof way to gauge what percentage of your net worth you should be comfortable risking on investments like stocks, real estate, or commodities. However, there are a few ways you can get a rough estimate of your risk tolerance.

- Assess your spending and saving habits: If you’re already saving 10 percent of your income and living frugally so you can retire early, you’re probably a relatively risk-averse individual. Conversely, if you’re spending your savings as soon as you get them and are already in a ton of debt, you’re probably more comfortable taking on more financial risk.

- Ask yourself what you’d do if your investments tanked: If you’d be okay with losing, say, 40 percent (or more) of your investment and then waiting a few years for your money to get back to where it was, you’re probably a relatively risk-tolerant individual. Conversely, if you’d be devastated if you lost 40 percent of your investment, you’re probably a relatively risk-averse individual.

The problem with marrying someone with a different risk tolerance

If the risk tolerance of your marriage partner differs from yours, your spouse could end up taking on a lot more risk than you’re comfortable with. Say your spouse invests in a few volatile stocks, and the tank. If you can’t afford to help them out, you could end up being resentful. Conversely, if your spouse invests in conservative stocks and they don’t do as well as they could have, your spouse could feel frustrated with you for not taking enough risks. These frustrations can become resentment if they go on for long enough. If you’re uncomfortable with taking risks, but you’re married to someone who loves taking calculated gambles with their money, you could end up resenting them.

When your risk tolerance clashes with your partner’s

If you’re a relatively risk-averse individual who is married to a relatively risk-tolerant person, you can try to compromise. Again, your spouse will be taking on a lot more risk than you’re comfortable with, but you can compromise by being more involved in the decision-making process. Ask your spouse what factors they’re considering when they decide to invest in a particular stock. By getting involved in the decision-making process, you can feel like you’re still being a part of the risk-taking process without feeling resentful.

How to match your risk tolerance with your spouse’s

If your spouse is relatively risk-tolerant and you’re a relatively risk-averse individual, you could try to compromise by becoming more involved in the decision-making process. However, this only works if you’re genuinely interested in your spouse’s investing decisions. If you are, then you could learn enough over time to make informed decisions. However, if you’re only doing this because you feel like you have to, then it won’t work. If you’re a relatively risk-averse individual and your spouse is relatively risk-tolerant, you could also try to become more involved in the investing process. This is as simple as reading a few investing books or asking your financial advisor for investment advice.

Meet with a financial advisor

If you and your partner are at an impasse, meet with a financial advisor and discuss your respective risk tolerances. A financial advisor can help you determine what percentage of your net worth you should be comfortable risking on investments and recommend a portfolio that matches your risk tolerance. You can then report your findings to your spouse and try to find a middle ground.

Discuss your investing beliefs and goals

If your risk tolerance differs from your spouse’s, discuss your financial beliefs and goals with your partner and try to find a middle ground. You don’t have to have the same risk tolerance, but it’s helpful to understand each other’s point of view and acknowledge each other’s fears.

For example, if one spouse is risk-averse and the other is risk-taking, the risk-averse spouse may feel concerned about potential losses. On the other hand, the risk-taking spouse may feel frustrated by the cautious approach. By acknowledging each other’s feelings, you can work together to find a balance that works for both of you. Ask your spouse why they’re taking the risks they are, and try to find a middle ground. By getting to know each other’s financial goals and beliefs, you can come to an agreement that makes both of you happy.

Have an honest conversation about how you feel about risk

If your risk tolerance differs from your spouse’s, have an honest conversation with your partner about how comfortable you are with taking certain risks. Be open and honest with your spouse, and ask them what investments they’d like to make and why. By having a genuine discussion, you can come to an agreement that makes both of you happy.

Educate yourselves about retirement savings, risk tolerance, and how to diversify your investments. This will help you both make better decisions with your money and keep you from putting too much risk in your portfolio. Stay informed and make sure you are prepared for any economic downturns or changes in the market.

Summary

There are lots of ways to determine your financial risk tolerance, but the best way is to ask yourself how you’d handle a significant drop in your investments. If you have a healthy amount saved up and you’re not relying on that money in the near future, you’re in a good position to take on more risk in exchange for the potential for higher returns. If not, then you’re probably more comfortable taking on less risk. There’s no one-size-fits-all approach to investing since everyone has a different risk tolerance. The key is to talk with your partner about your respective risk tolerances and come to an agreement that makes both of you happy.