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Beth Orford: Hello, I’m Beth Orford. Welcome to tonight’s live webcast on Managing Your Household Finances. Over the next hour or so we’ll discuss the importance of taking an active role in your financial life. And with us today to discuss this important topic is Maria Bruno of Vanguard Investment Strategy Group and Kahlilah Dowe of Vanguard’s Personal Advisor Services. Thanks for being here.
Maria Bruno: Thank you.
Kahlilah Dowe: Good to be here.
Beth Orford: Great. We’ll spend most of our webcast tonight answering your questions. Two items I’d like to point out. There’s a widget at the bottom of your screen for accessing real-time technical help. And it’s the blue widget on the left. And if you would like to read some of Vanguard’s thought leadership material that relates to tonight’s topic, click on the green resource list widget on the far right of the player. Ready to get started, Ladies?
Maria Bruno: Yes.
Kahlilah Dowe: Yes.
Beth Orford: Great. Good. Before we get into our discussion, we’d like to ask our audience a poll question. On your screen you’ll see our first question, which is, “Which of the following do you find the most challenging when it comes to getting involved in your household finances? Lack of confidence. Feeling overwhelmed. Not knowing where to start. Procrastination. All of the above. Or, none of the above.” Please respond now and we’ll share your answers in just a few minutes.
Many of you submitted questions in advance. So thanks so much for doing that. Let’s answer one of those questions right now. Maria, Tim from Pennsylvania has written, what’s a good way to make a decision around dividing the administrative responsibilities of managing household finances between two people?
Maria Bruno: I think we’ll probably talk a lot about this in terms of communication. And I think that’s key. Because really when you think about the household that could be two people, it could be the family and it’s really important to think about alright, what are the goals that you’re planning as a couple, and make sure that you’re aligned there. It’s also important to understand, regardless of whether or not you have this division of labor, right, some may handle more of the administrative work, others may handle maybe more of the budgeting or whatnot, different aspects of it. It’s still important to understand what you have holistically. So at a minimum both individuals in the household really need to understand what they own, like what accounts they have, what’s coming in, what’s going out, in terms of expenses. So at least at the highest level understanding what the broad picture is.
And then also understanding in terms of the cash flow, in terms of you know what in terms is coming in terms of income, expenses, and then just getting a handle on that. And then it’s fine, I think, to divide and conquer on these, but at the end of the day, both individuals really need to have at least a broad brush understanding of what they own, where it’s held and then also just have a sense of what’s coming in and going out.
Beth Orford: That’s great. Kahlilah, you know, you work with clients all the time. It seems like both parties, or more than both parties if there are more than them, might come at this from different angles, might have different views about, say, risk or budgets or things like that. Anything to add to what Maria was saying?
Kahlilah Dowe: Yes, I have to admit that for the clients that I work with most of them have one person to handle the finances, right, and so it’s kind of my goal to try and really pull them in together you know to make sure that, like you said, Maria, that both have the holistic view of what the portfolio looks like, and really what the overall finances look like. I’ve seen instances where you know when you talk about splitting the finances, they may have one person manage the finances one year, and then alternate, yes. So that the other person—
Beth Orford: Well, that’s an interesting one—
Kahlilah Dowe: Right, and it gives that one person a break from having to do everything. And it also creates some accountability, right, if you’re kind of doing it together.
Beth Orford: That’s a really interesting idea.
Maria Bruno: Yes.
Beth Orford: Well, we got the results of our first poll question, so let’s see. It looks like the majority of people have chosen “All of the above.” So we’re not so surprised by that. But then we look at procrastination is being one of the drivers for, you know, the challenge for why people don’t get involved in this. So any advice for our folks, on how to overcome procrastination?
Kahlilah Dowe: So I think that’s the number-one challenge, because you know that you should do something. The question is what. And so it’s kind of taking that first step and oftentimes I think it starts with the planning stage, right. So where you really look at your goals and you say, okay just at a high level, what is it that I’m trying to accomplish here. Because I think if you start there you have a really good idea of what you’d like to see happen, that kind of gives you a place to start when you think about creating the blueprint on what you need to do to get there.
Beth Orford: And somehow procrastination you know we all put off things that we might not want to do. Is there a way to make this more fun, engaging, something to look forward to, Maria?
Maria Bruno: Yes, I mean I think certainly if it’s something that you don’t enjoy doing, you have the natural tendency to just say, okay I’m going to deal with that later, but it doesn’t go away and it’s something that you need to deal with. And we all know through things that we procrastinate in our lives is once you get that off your plate you just feel better. So I tfhink Kahlilah’s point is very valid in terms of you know just taking a first step and you know with finances you may— As we talked about divide and conquer, but it’s just starting, in terms of what really matters. In terms of the big-rock items. In terms of you know looking at savings rates and things like that, just tackle one thing at a time. And then it will start to feel a little bit more comfortable and a little bit more natural.
To weave a story in, I think when some of the work that I do with my colleagues is look at investor behavior. So Kahlilah’s group works a lot with clients; we look at how investors make decisions as well as some supporting research. What’s interesting is, when we look at how investors make IRA contributions, we see procrastination really at the forefront because IRA contributions are coming in at the deadline two weeks before the close of the tax season. So it’s not surprising, but what happens is, people tend to make short-sighted decisions. They decouple the contribution and the investment decision so they may park it in a money market thinking that it’s “safe.”
But what happens is, life gets in the way and then investors don’t go back and look at their portfolio. And what we found is that about four months after, two-thirds of the individuals are still sitting in cash. So it’s understanding the importancef of doing it but also the ramifications of not handling these situations or maybe procrastinating and not going back to it really can have long-term effects on the overall household situation or the investment portfolio.
Beth Orford: Great. Good discussion. Let’s ask our audience one more question, how about that. “Have you recently had to assume responsibility for your household finances? Your choices are, Yes, No, No but I’d like to prepare for the possibility.” Please respond now. And we’ll get your answers in just a few minutes.
So while we’re waiting for that, I think back to this idea of the first steps and starting and, “What are some good strategies for staying accountable for our goals as a couple, other than holding regular finance meetings? So how do we sort of get started and hold ourselves accountable?” And this comes from Madeline in Minnesota.
Kahlilah Dowe: Right, so that’s a great question because when you think about monthly finance meetings, you could look at it as an exciting time where you go in and you talk about what you want to do, and what you’ve done. But not everyone sees it that way, right. It could be something that can be very stressful if, like she said, you don’ft enjoy doing it. Or it’s a struggle. And so you know, like she said, the question becomes how often do you have to do that. I think communication is definitely the key. So I don’t think it’s good to try and avoid them altogether but I think there are some ways where you can manage your finances that allow you to meet, let’s say, less frequently.
So one of the things I would look at is, you’d have to be pretty disciplined. So if you are—let’s say your savings for example, if you know that you save let’s say 15%each month, 15%of what you bring in, and you do that month in and month out. That’s one less thing that you may not have to meet about and discuss. The same thing would apply for let’s say large expenses. If you know that you set a certain amount where you can say anything above this amount we’ll meet about, if not then we may not need to. So to the extent that you can be really disciplined and put some of it on autopilot you may not have to meet as often.
The other thing is when you think about accountability there are some great websites out there that allow you to kind of track your expenses, your cash flow. As a matter of fact they’ll pretty much do it for you. I know there are quite a few. But it kind of keeps you accountable together and separately. If you go over a certain amount on, let’s say, a specific area, it will actually email you and say hey you’re over in this area. So that’s one way that you could also kind of stay on top of things making sure that they’re not being, you know, going by the wayside, but still not having to have those monthly meetings to do that.
Beth Orford: That’s a really, really helpful tool, just having something that nudges you a little bit, right.
Kahlilah Dowe: Right.
Beth Orford: Great. Well, I think our poll results are in so let’s see how people answered this question about have you recently had to assume responsibility. About 22%of the group said yes they did, 43% no they haven’t, and another 34% are here because they haven’t had to but they anticipate that they will in the future and they want to be prepared. So we’re very excited to have everybody joining us across the board.
And to that end, I might sort of throw out this next question that we got from Scott in New Mexico: “What are the pitfalls of only one person in that relationship managing all the financial affairs?” Maria, let me turn to you on this one.
Maria Bruno: I think that’s a really difficult one. Because when you think about the household then you think of a couple; whether you’re married or not, there are two individuals that really play into that household. And eventually there’s going to be a situation where one person, either if one person passes away, or if the relationship dissolves for whatever reason, that you’ll have to—
Beth Orford: Somebody simply unable to like that—
Maria Bruno: Yes or even diminished capacity.
Beth Orford: Gets ill and—
Maria Bruno: Absolutely. The reality of it is it will happen at some point. And the better you can prepare for it, just all the better you are in terms of being able to meet things short-term as well as long-term. What happens then is during these situations they become very emotionally stressful. And then you’re not only dealing with the emotional aspects of what’s happening in your life, but then also the finances. And it can really become really burdensome and too much. And what happens is decisions may be made in haste, which really are not good from the long term.
So the more that you can do today to prepare for the inevitable. You just feel a lot more comfortable. Both individuals are on the same page. And then you can just work together towards meeting your goals. Even if you handle your accounts separately at least there’s the clarity and the communication that you can work towards together. And then in the event something does happen, you know even if it’s a medical need or things like that, and that’s where I think we’ll talk a little bit around documentation and making sure that you have your medical documents in place as well because it’s not just financial that you may have to deal with.
Kahlilah Dowe: Right. And then I would also say, you know, I think it’s always good to have a second set of eyes, right, because I think there’s kind of a misconception that if someone has been doing the finances for, let’s say, 10 or 15 years and handling everything, they must be doing a great job, you know. Which is not always the case. Sometimes having that second set of eyes in terms of accountability can be a good thing.
The other thing is that I think there’s a lot to it. So when you think about putting the plan in place and the execution of it, and then tracking it to make sure it stays as it should be, that’s quite a bit for one person. And I think also one of the risks is that what a person could get kind of burned out having to do that on an on-going basis. And so I think that’s also a reason, or one of the pitfalls to having one person versus kind of splitting the responsibility.
Beth Orford: Great points. Great points. I think we have a live question that just came in, so let’s see what Susie asks. This question is, “I recently got married. Both my husband and I have been good about finances. And are so used to managing our finances independently, we don’t know where to start in joining our finances and managing them together. Any suggestions or advice?” Great question.
Kahlilah Dowe: It is.
Beth Orford: So yours, mine, and ours, right, the title of our webcast.
Kahlilah Dowe: Yes, I think it starts with the planning. So that’s the very first thing. I think it’s difficult to merge the finances if you don’t have a common goal in place. So the first thing would be to sit down, decide what do you hope to accomplish together. And I think there’s also a lot of pressure to put things together, we’re married now, everything has to be as one. And not that that’s a bad idea, but I think you know kind of taking your time and doing it in a way that’s methodical and that helps you to achieve your ultimate goal, which hopefully through your planning process you’ll be able to define that. But I think that’s where it starts. Planning what you’d like to do together and then figuring out the best way to merge the finances to achieve that.
Beth Orford: And as you say you really, you don’t have to. Are there any advantages of not merging? Like should we merge, shouldn’t we merge our finances? Any considerations there?
Maria Bruno: And I think that does get— We’ll find this, because it gets very individualized. And you don’t necessarily have to. Certain investment accounts by their nature, retirement plan accounts, are individually owned and then you have a beneficiary. So you need to make sure that if you have a life event, such as a marriage, you update beneficiaries, for instance; that’s one good step to make sure that you don’t miss that. But beyond that I think it really depends in terms of how you both want to manage the financial picture. It’s okay to have the accounts separate as long as you both agree to that. And you’re both saving towards the goals that you need to.
You also need to think about even like the home. Individuals are marrying later and they may end up moving into one person’s home and selling the other. Well, how should we hold the title of the home? And how do you think through that to make sure that things both from an investment standpoint but also from real estate, life insurance like those types of things, go through that inventory and just go through and make sure you understand how they’re held, and whether it makes sense to move these into joint ownership or not. And that may vary by couple.
Beth Orford: It’s great. We haven’t talked yet about you know the use of a third party, right, an advisor or something like that. We had a question that came in prior to the broadcast from Amanda: “Should we see a financial planner together? How do we pick one out? What should it cost?” Can you talk a little— I mean you’re a financial advisor, Kahlilah, so what’s the advantage of— There’s a lot of complicated questions that are coming up here tonight. Is there an advantage?
Kahlilah Dowe: Yes, and many investors will see a financial advisor, just to put their ideas out there. Both of them have ideas on what they’d like to do. They want advice on how to kind of pull it all in together and to get there together. So I like the idea of seeing a financial planner when you’re starting out. But also as you go along and just kind of make sure that things are on track. I’ve seen instances where investors will meet with me separately. So I may meet with one spouse one day and the other spouse the other day. I think it depends on the goals.
And so there’s been instances. I think this kind of circles back to the last question where I’ll have someone married, but they have, let’s say, children from other marriages. And so they may have some accounts that they know want to— They want to go to those children. And other accounts they’re comfortable with splitting. So I think especially, as it gets more complicated and like you said we’re seeing more of that, I think it definitely makes sense to pull in that neutral party that can help the two of you kind of bring things together, merge things together. I think that can be beneficial.
Beth Orford: Yes, and really compose some questions, and also bring up some of the specifics of tax law and other things that might be helpful in decision making. And just to remind the audience, we’ve got a list of resources on your resource widget that will talk about using a financial planner and teeing up some of these other questions. So refer to that as you wish.
Richard has sent in a live question; I’d like to take that one if we can. “If you’ve had difficulty navigating financial discussions as a couple, all other areas of the relationship being good, would it help to work with a Certified Financial Planner™ professional to get on the same page?” So another reason maybe to consult a third party. Anything to add around this question? It sounds sort of similar to what we were just discussing.
Maria Bruno: I think so because I think it really helps think through the issues together and individually. So it’s good to go through it. Like when you think about risk tolerance, for instance, right. Okay and that’s two words, right, risk tolerance. But it just means different things to different people. So Kahlilah and I could sit here and we could both give different definitions to what we view as being a moderate investor. But that means different things to different people. So it’s just going to talk to professionals and saying okay, well, let’s talk through that.
If this were to happen in the markets, how would you react, how would you feel? So through those types of guided conversations you can then get to a common page in terms of how you want to allocate the portfolio, for instance. Or maybe you find out, okay, well, you have two very different risk tolerances, how do we get to a common ground. And that’s where working with a professional you can find that common ground, or bring up things that you’ve never really thought of before that. You really want to think about as you start to have children, you’ve got competing goals in terms of what you’re saving for. You need to make sure that you’ve got the proper documents in place, your will, guardianship for the children, things like that.
So because life gets in the way and sometimes you don’t think about what happens along the way, until something happens. So working with a professional can really get you through all of those types of things, get you to professionals that you might need in terms of maybe an attorney to draft legal documents or whatnot. And that way you’re situated. But I do think you need to go back every couple of years at least and go revisit that and make sure that the plan is still current. It’s not a once and done by no means.
Beth Orford: And this concept you referred, to it’s sort of in passing, but I wanted to drill down a little bit more on this. The idea of competing goals. Maybe talk a little bit more about that? Either Maria, you can talk about it, and Kahlilah, chime in here. But what about competing goals? Why is that important to consider?
Maria Bruno: Well, it’s very important because we have limited resources as investors, right. So you’ve got human capital, and how do you invest to meet these goals. And they could be short-term goals or long-term goals. And it’s important to make sure that you’re saving enough for these goals, but then also properly allocated in terms of stocks, bonds, and cash and make sure that you’re properly diversified. It’s interesting in that, you know, we look at how males, you know men versus women approach investing. And you hate to generalize, but you do see and research shows that there are some differences in how individuals look at decision making.
And you might, working with clients be able to assist with this as well. But when you think females generally will think about goals-based investing and they think about it in terms of success to goal. And working with female clients and having those discussions you can really think through okay, well, what are they looking to achieve and then how can they meet those goals.
Generally speaking, men tend to look at it from a performance standpoint and maybe performance relative to a benchmark, and that’s how they determine success. So just how they think about this differently and how they approach investing, you just think about how you, when you meld these together in an oval financial plan, they might be trying to meet the same goals, but they’re going about it quite differently and it’s important to build the plan and communicate to both individuals within the household to make sure that they understand and that they feel comfortable with where they’re headed. So the investment discussion doesn’t—the fundamentals are there, it doesn’t change, it’s just how you communicate with those and think through this.
Beth Orford: Yes, and I think you’ve probably worked with clients where you know one person in the couple might really want to be very focused on saving for retirement. And if we can pay for college, great. The other person might go, “Oh no, no, no, college is my primary goal.” That’s where the competing goals come in. And sort of talking that out and negotiating it is important.
Kahlilah Dowe: Right. Exactly. One of the other things that I see fairly frequently is when we think about retirement and kind of asked the simple question, which is what do you ultimately expect to use this money for. And you would think retirement, which is usually the answer, but then the second question is, okay, you have, let’s say. three or four children. Are you trying to leave as much as you can to them, or and I’ll get one spouse who will say, “Oh yes, definitely. We want to leave as much as we can.” And the other spouse will say, “Wait, I think we should spend down what we have.” So that’s the other thing. And I think that’s also one of the reasons why we really need to have both spouses to give their input, right, because it’s my job as the advisor to say, “Okay, how can we get both, when you think about those competing goals; how can we set you up for success on both of those areas?”
Beth Orford: Great. We have another live question come in because I don’t think we answered this; we sort of teed it up the first time. But how do you choose a financial planner or CFP®? What are some steps? How do we suggest people go about choosing one?
Kahlilah Dowe: Yes, so I’m sorry, did you want that one?
Maria Bruno: No, go ahead Kahlilah, yes.
Kahlilah Dowe: That can be challenging. Because there’s so many out there you want to make sure that you’re using someone that’s reputable, word of mouth. You know if you know someone who is very happy with the advisor that they’re using, that’s a good place to start. The other thing is, if you already have a relationship with a financial institution, let’s say you have a 401(k) somewhere, oftentimes that’s a good place to start. They may have some resources available to you. You may also find that since you’re already with the institution that there are some discounts that you may be able to get. So I would say start there; start with word of mouth and then any financial institutions that you’re currently working with.
Beth Orford: And just as an aside, we have a whole team of financial planners like Kahlilah who work with clients here at Vanguard. And it can be sort of as a onetime you have a discussion with a financial planner. Or you can have a financial planner actually work with you in an ongoing state and really help you side-by-side with you and help you run that portfolio. So if you happen to be a Vanguard client we could help you out with that as well.
Maria Bruno: And the thing I would add to that too would be just to make sure the credentials of the individual that you’re working with. And that’s work experience as well as whether or not they’re licensed. So when you think about there’s different designations that are out there so people have letters behind their names. Those certified financial planner designation is one of the premier designations. Kahlilah and I both have that designation and to acquire that—
Beth Orford: And me—
Maria Bruno: And you do too, Beth; we used to work together. And so we know, we had to go through educational requirements as well as work experience to receive that designation, and then we have to go through continuing education every two years as well too. So there is a vigorous curriculum there. And fiduciary responsibility that we, as license holders, have to adhere to. So look at the combination of, and you can go to the CFP board website for instance, and you can see a list of advisors in your area who are licensed and then couple that to work with the work experience to Kahlilah’s point then you can find the one who may be most aligned with what you’re looking for, whether it’s a one-time plan or an on-going financial planner. And also how they’re compensated.
Beth Orford: Well, I was going to bring that up, Maria.
Maria Bruno: Yes.
Beth Orford: So why don’t we talk a little bit about how financial planners— There’s a variety of different methods for compensation. True?
Maria Bruno: Yes, there are. It can be hourly, it can be percentage of the assets that are under management, it could even be commission-based so that we’re migrating much more towards hourly or the assets under management. So you really want to make sure you understand how the advisor that you’re working with is being compensated. Because ultimately, as advisors, we need to put our clients’ best interests at the forefront, and if you can remove that commission-based environment, then it’s just the middle man is out of the equation there and then the advisor works with you as an individual to put your best interests first.
Beth Orford: That’s great. Another live question; shall we take that one? So it comes from Ann: “My husband and I have very different levels of knowledge and interest in investing as well as risk tolerance. How do we manage our money together? Do we have to find common ground or can we just manage our money separately?” We sort of talked about this one before but, you know, I think it’s personal preference, can we talk about the pros and cons?
Kahlilah Dowe: Sure, and I think this is an instance where working with an advisor may be the best thing to do because I think one of the other comments that came in was just around, you know, when you think about financial compatibility, not having that in any relationship I think could be a pretty serious point of pain. So I think that’s an instance where having a third party to come in may be helpful.
The other thing is, again I think there’s that pressure to put everything together whether you’re compatible or not, because you’re married. With this, I would say it really depends on the situation. And I’ve seen situations where investors have kept things separate until they can work through some of the issues that may have come up.
I always start with the planning part of it, right, because that’s something that you can usually see eye to eye on. What do we ultimately want to do. And many investors will have very different ideas on what we need to do to get there.
One of the things I’ve noticed is that the male investors that I work with tend to be more aggressive. So they want to try and capture the highest return whereas some of the female investors that I work with still want to focus on growth, but the mentality is more of how much risk do I have to take in order to get the growth. And so I think it can be difficult to kind of merge those together. Again I think starting with what do we ultimately need to see happen there is the first thing. And then coming back and working with an advisor or a third party to say, “Okay, what’s the best way to get there” and kind of getting that neutral perspective.
Beth Orford: That’s great. And I wonder too, just there could be instances where some of your assets are merged but you have some assets that are in your own names. So you can go do whatever you’d like with them, so there could be a blend, it might not be either or.
Maria Bruno: I think that’s probably more common than not.
Beth Orford: Do you? Interesting.
Maria Bruno: I do. Especially when you have two individuals that are working in the household. I do think when you have someone in the household who is earning less or maybe not working, you know usually there’s someone who’s raising the children for a number of years, there may be a thought there differently in terms of okay, I may not be contributing financially to the household, do I have equal footing on this. And those are things you really need to talk about because you may not be doing that monetarily but by staying home and raising the family, and being the primary caretaker, you are contributing to the household—
Beth Orford: Significantly.
Maria Bruno: Significantly. And this is really talking through that. And you know it may not always be 50/50 in terms of expenses. And just having that dialogue. And it will vary by household and by individuals as well. I think sometimes too when you get into second-marriage situations, or people who are marrying later, they’re bringing more financial assets into the equation. They might have children from previous marriages and whatnot. And you might see the tendency more to have the assets separated. And that may be perfectly fine because their goals of what they want to do with those monies are predefined. But as long as both individuals—
Beth Orford: That’s right.
Maria Bruno: Yes, as long as both individuals are fine with that, I do think it’s important to have it if there are differences to make sure that you understand the implication of holding things separately and whether or not you’re married. So if you’re married, you know, there’s certain things in terms of how you hold assets or Social Security claiming strategies or whatnot. In terms of there may be certain, just by the sheer nature of how the accounts are held. But if you’re not married then you need to make sure that you have an understanding where the accounts are, what’s held separately, and what you may work towards jointly. And have it in writing. If you don’t have documents, a cohabitation agreement may be something to think about, just having it in writing and that makes sure you’re okay with that.
Beth Orford: Maybe we should go down this path a little bit. You sort of have hinted at it, Maria, but the estate planning implications. We’ve talked about blending your assets from a goals based and, but we haven’t really talked about what do you want to do with your assets from an estate standpoint, and blending those assets and having common views on that is very important in a relationship, wouldn’t you agree?
Maria Bruno: Sure.
Beth Orford: So, Kahlilah, you want to start on that one?
Kahlilah Dowe: Yes, so I’d say the estate plan is something you know when you think about both spouses being involved that tends to be the one thing where both spouses kind of say, like, “Do we have to?” Because it can be difficult; you know, you’re making some tough choices, but I think it’s very important, especially in a situation where one spouse is more involved than the other. Because I can’t tell you the number of times I’ve worked with investors who, unfortunately, have just lost someone. And they have questions around who are the beneficiaries on these accounts, right; how am I going to turn this portfolio into a source of income for me.
And so I think having a full estate plan in place, and when you think about that, we’re talking about wills, we’re talking about medical directives, we’re talking about durable power of attorneys, I think that’s also a really, really big one when you think about both spouses being involved. Because I think there’s the assumption that if we’re married that means I can come to Vanguard or any financial institution and conduct business on my accounts or my husband’s accounts; they’re our accounts.
And oftentimes that’s not the case. And it’s unfortunate because we have to deliver a hard message in explaining that even though these are technically your assets, if you don’t have a durable power of attorney in place, you may not be able to access those assets if something happens, if they’re, let’s say, incapacitated. So I think having a comprehensive estate plan in place is essential for really everyone whether you’re retired, you’re newly retired, you’re well into retirement. Of if you’re accumulating assets.
Beth Orford: Yes, and it’s really about, again back to these common goals, but then being prepared, understanding what the documents say, how they direct you, and agreeing and then being able to take it forward at a time when one of those emotional times that you were referring to before, Maria.
Maria Bruno: Yes, absolutely. Beth, you nailed it in terms of everyone needs to think through this. Whether you’re single, married, or even you know if you have a partner then you really need to think through this, because if you’re married, and there’s a medical emergency, then the spouse can probably make medical decisions for the other spouse. If you’re not married, then typically that partner may not be able to make those decisions unless you have a power, a durable power of attorney or a medical power of attorney of sorts. And then you may be— Would be the children, typically that would have to make those decisions. And you need to think through that well in advance of something happening, just to make sure that you’re comfortable with who can make those decisions. Because again it’s— The emotions can get in the way.
So if you can talk through that earlier on, make sure you have the documents in order, in terms of what happens if something happens, while you’re alive. But then also upon your death in terms of the estate transfer. There’s just more clarity and knowing where the documents are. So it’s not just having the documents, knowing where they are and where they can be accessed is key.
Beth Orford: Another good reason to have both people involved. I’m going to take the conversation in a slightly different direction. We had a question that came in previously from Laura. And Laura says, “Currently I’m the household CFO. And I’d like to get my husband more involved, but it seems to be a personal thing; a.k.a., he’s not interested. I’ve tried different approaches, I’m not sure how to go about doing this. I’d love to get him more involved; I’d like recommendations from you about how to get the person who sort of holds their nose and puts up their hand and says, “No, I’m not really interested in this.” Any ideas for how you get that person to the table?
Maria Bruno: Well, that’s an interesting question. I think we probably see that a lot working with clients. But I think part of that might be just understanding why. Is it a lack of interest? Is it a fear? And/or just a comfort knowing that my spouse is the CFO and can handle these and I really don’t need to? Because I feel very comfortable. So it’s just trying to understand why. And it can be tough. And I think you need to start gradually, maybe start by saying hey, can you look at this with me. Or I would like to get your thoughts on this. And maybe starting that dialogue basically putting your toe in the water as opposed to going full force and saying okay we’ve got to sit down for a monthly finance meeting.
That would be my recommendation, just starting small and just starting that dialogue in terms of well, why don’t you want to get involved. I think it’s important for these reasons. And then just start that dialogue because then you can get a sense of okay, where are we headed? Does he or she not want to do this? Or is it just they feel more comfortable with me? And this may be where bringing in a professional can help navigate some of those conversations to help chip away at this.
Kahlilah Dowe: Yes, and I think, again, that is really tough because you can’t really, if someone doesn’t want to be involved, you can’t really force them to do it. And I think it can take a toll on a relationship trying to, you know. And you know when you think about kind of sitting down for those monthly meetings, and you have like the stack of bills—
Beth Orford: The binder, yes, right.
Kahlilah Dowe: You know, it can be intimidating. Especially if you have an aversion to doing it. I would say again kind of tiptoe into it, maybe it doesn’t have to be a formal meeting. Just kind of asking questions here and there. The other thing is sometimes it helps to approach it from a high level. So maybe not looking at these are all of our investments, but this is what we have. This is what we’re spending. And maybe a spreadsheet where you say this is what we’re spending, this is what we have, this is what we save every month, and so kind of keeping it high-level but also keeping them in the loop.
Again, I feel like I keep going back to the planning, but I think that’s another area where you can bring them in. I think it’s easier to bring someone in at the planning stage than to bring them in once things have already been planned out and it’s kind of in the working and you’re executing it. So that’s the other thing I would say is to try to bring him or her into the planning stage of it.
Beth Orford: Have you tried like sort of the education route? I think some people’s fear is that it just seems so complicated and you know I really don’t know that much about markets and investments and things like that. You know, we’ve got a lot of sort of basic materials. More educational materials. So before you ask people to start making decisions and digging into our own personal finances, I found you know, in the past in my career, just helping with a little bit of education here or there. Have you seen that work?
Kahlilah Dowe: I think that that definitely works where they can kind of take their time and look at it as they get more comfortable. But the other thing I think is you know when you think about someone being, and I hear this a lot, like they’ll say they’re not financially inclined or I hear quite often my wife isn’t into this stuff. Or she’s not a numbers person. I hear that quite often and when you think about this, what it takes to be good at let’s say planning and the finances, it’s really more of those skills around organizational skills and discipline and details. And oftentimes you have people who are very good in those areas in other parts of their lives. But when it comes to the finances, you know this kind of the misconception that you have to be really good at math, or really good with numbers in order to do that.
And most of the time that’s not the case. And when you get books that talk about it, many investors are surprised to see that it focuses a lot more on discipline and details rather than the numbers part of it.
Beth Orford: And in fact I think, you know our goals for our principles, for investing success, I’m going to ask us to bring that up on the screen now. It’s really four steps. Sort of easy, you know we can talk people through it. It’s maybe a way to step into this to bring people to the table. And maybe we can talk about it: goals, balance, cost, discipline. Those are really the four basic pillars of establishing a successful investment plan. Anybody want to go into that a little bit more? Like what do those mean? That might be some education that we can lure people into the discussion by using these principles.
Maria Bruno: Yes, and I think that’s a really good way to start. When you think about goals is okay, well, what are we investing for? So we talk about retirement. Well, what does retirement look like? How many years away is it? What do we want to do in retirement? So really defining what that goal is and how long will it take us to get there. That will then determine how you need to build your investment portfolio. That’s where this balance comes into play in terms of how do you balance your asset allocation among stocks, bonds, or cash, in terms of properly diversifying the portfolio to make sure you have the right growth and income balance to meet these long-term goals.
The third being cost. So when I talk about costs it’s both investment costs, management costs, but also taxes. So really focusing on the things that you can control, because you really, you know we can’t control the markets or the economy, but we can control things like how much are we spending in terms of investment fees. Are we being as tax-efficient as we can be? And then the last, which is the key and probably the most difficult is the discipline aspect of it in terms of making sure once you determine how much you need to save, for instance, or if you’re retired how much you can spend. Having the diligence to keep up with that, it also entails things like rebalancing the portfolio, which behaviorally is tough because when the markets get a little bit choppy it may be a little bit more difficult for us to rebalance the portfolio.
But we know it’s something that we need to do to make sure that our portfolio is in line from a risk standpoint with our goals. So—
Beth Orford: But in that rebalancing or the discipline part, we really suggest that that’s almost a once-a-year, not more than twice-a-year activity. So I think talking through these four pillars with the reluctant person, the person who doesn’t really want to come to the table, first of all, we say it’s not that hard. It’s pretty easy. A financial advisor can certainly help you through these steps but it doesn’t take a lot of time or investment personally. There’s a good discussion that needs to be had; you probably need to discuss your vision and your goals for and your approach and preferences to your financial lives together. But the actual execution of it doesn’t need to be that daunting or that hard.
Maria Bruno: No, it doesn’t. And that’s key. I mean, Kahlilah had mentioned it before in terms of if you can take advantage of technology and make things automatic. So if you can do an automatic investment program, that handles the discipline so the money is being directed automatically into the appropriate loveds. When you get two funds and you think about how the portfolios are designed, there are balanced funds or all-in-one type funds that manage the asset allocation for you, so you don’t have to be as concerned around the rebalancing aspect of it, because the fund is designed to manage that for you.
So it can be broadly speaking simplified, which could make it very much more comfortable for these individuals that may have a fear or just a discomfort in getting started.
Beth Orford: Yes, and there’s great materials on that resource list widget out on the webpage that you’re looking at right now for those of you in the audience to be able to dig a little bit deeper on a topic like a target-date retirement fund, or you know some of the other topics that we’ve talked about here. That’s great; great, Maria.
Maria Bruno: But I just wanted to share an analogy. So I was talking to one of my colleagues about this because the topic of this webcast was interesting, and he shared an analogy with his wife in terms of they just recently did an addition to the home. So he was very focused on making sure that the addition, the bathroom was the size that they wanted and whatnot. And the structural features. But once they got into the color design he turned it over to her because he feels she has a better eye for it. She was feeling like why am I the one who has to make these decisions, why are you not engaged? And he’s like, no I took care of what I think I needed to take care of and I’m comfortable with you taking the rest. So they found this balance, right.
It may be a silly analogy, but I watch a lot of home design shows and I see this all the time where you see this communication not happening and then one spouse only sees one color and the other person is like well, I completely hate that color. It’s like well, you never told me. So it’s just having that communication, it happens a lot in a partnership or a marriage and then you find things along the way. But then what you do is you kind of channel along the way to make sure that you get where you need to do. So when you stop and think about it, it happens a lot in a relationship—
Kahlilah Dowe: A lot of different decisions—
Maria Bruno: It does, yes. Absolutely.
Beth Orford: Yes, that’s right. We’ve got several questions ahead of time around this issue of budgeting. One person’s the spender, one person’s more of the saver, you know how do you go about establishing a budget and staying with a budget. Any budgeting tips, tools that you might have?
Kahlilah Dowe: And I feel like budget has become the bad word, you know, because as soon as you hear budget you think of restrictions, right, but it’s really, really important in terms of you know we talked about discipline kind of being the glue that holds it together, and I think it starts with a budget. I have to use that word. But I think there are other ways. You know traditionally when you think about just having a budget you know that you can only spend X amount on something or another. I think there are great tools online that kind of help with the budgeting part of it so that you’re not kind of having to check off everything each time you spend something.
But there are instances where you have one who’s really good at saving, and the other who’s really good at spending. And they kind of balance each other. One of the things that I’ve found helpful is to show the impact of both. Where you have one who, let’s say, wants to save more and the other wants to spend more, really focusing on okay, if we save X amount each month, this is what we can do, as opposed to you know if we spend. And kind of giving them the option to make the decision based on what the end goal looks like.
So that’s one of the ways that I handle it; it’s not so much saying you can’t buy this or you have to save that. But kind of really forcing the decision around which would you rather do. And I think it’s a little easier when you show it—
Beth Orford: Showing the options.
Kahlilah Dowe: Right, when you show the options in that way.
Maria Bruno: And it’s a series of tradeoffs, right. So it’s just working through that and realizing what’s the most important now or potentially later. Because if you’re spending less now for something and you can be saving that may mean more later in whatever it may mean in terms of whether it’s retirement or home purchase or whatnot exactly.
Beth Orford: So, a couple more questions that came in: “How can a woman protect herself financially, should the relationship turn sour?”
Maria Bruno: Well, that’s a good question, and I don’t think that’s a gender question, right. That should be any individual who is potentially in a partnership or as they think about a partnership or a marriage with an individual. I think, I mean no one wants to go into a relationship thinking okay, it may go sour, but the reality of it is, you know, it may. And if you are married that’s one thing, but if you’re in a partnership, I think it’s what we talked about earlier in terms of what are you bringing into the relationship, having that conversation in terms of who owns what, what are we going to do together, and then just making sure that you really have it written down on paper.
Because again I hate to go back to it, but you know in the situation we talked earlier when something happens the emotions can take over and it becomes much more difficult. So if you have things discussed and documented earlier then there’s clarity along the way. I don’t know; Kahlilah, do you have anything to add to that?
Kahlilah Dowe: Yes, that is a tough one. That’s a tough one because like you said you don’t want to go in—
Maria Bruno: No, right?
Kahlilah Dowe: Thinking that. I can say that I have worked with investors who have had similar concerns. Not even that they were anticipating anything, they were just trying to be diligent. And so one of the things that I’ve seen is that one spouse will say I want to live a lifestyle that I could support on my own if I had to. Or I’d like to save at a rate, usually much higher that could support me in retirement, if I had to support myself. So I think that’s one way that you can plan for worst-case scenario without coming off as I’m the, you know, I’m looking—
Beth Orford: Yes, I’m wishing for the best but preparing for the worst, right.
Kahlilah Dowe: Exactly. And then the good thing about that is you may find that things work out well and all is well, in which case you would have saved a lot more than what you actually need, but I think that’s the best way to kind of hedge your bets if I could use that.
Beth Orford: Yes, and I just think knowledge is power, right. Whether you think the relationship may turn sour or not, being knowledgeable, being part of the decision-making process so that you understand if you were to end up in the position of having to manage your own finances.
Maria Bruno: And it also gets into things like, you know, insurance and making sure that— Because it’s like okay, what does this mean to turn sour. But I think Kahlilah had— I think you hit the nail on the head when it’s thinking about well, if something were to happen I want to make sure that I can do this on my own, or my spouse can, or my partner can. So it’s knowledge is power, but also thinking through this okay, do we have enough insurance. Do we have, if there’s children involved, do we have the right contingencies in place. Having those level of discussions as well.
Beth Orford: Yes, and a different life event, but you know along the same lines, we had a question from Jean in San Antonio: “Suggestions for widows who have never before taken an active role in managing the household finances.” So you know, sadly, you know one partner does pass away, what can that person do who really wasn’t involved, wasn’t involved in the planning, wasn’t involved ahead of time, but now finds herself in that situation where she has to take on this responsibility.
Kahlilah Dowe: Yes, another tough one. I would say the first thing is one of the things I found is that you know when a widow will find herself in that situation oftentimes there’s embarrassment that you know I didn’t get involved, and I always wanted to kind of speak up and say that I wanted to be involved and I never did. And so the first thing I would say is don’t be afraid to ask for help. There’s nothing to be embarrassed about. I think there are great resources; Vanguard. That’s one of the things that we do as advisors is to kind of help you.
And the first thing that I look at in that type of situation is kind of assuring them that they’re going to be okay. From a financial perspective. Because the number-one question that I get is, do I need to cut back? Do I need to cut back on what I’m spending? Do I need to sell my home? What do I need to do now? And so the first thing that I look at is whether or not they’re on track. Can they continue to live the lifestyle that they live right now?
The other thing I would say is you don’t have to understand everything today, you know. It’s— I can understand the drive to kind of want to know everything that’s going on and kind of get a grasp of it.
Beth Orford: Grasp of it—
Kahlilah Dowe: Right. Exactly. But I would say kind of take your time. Understand where you are right now. I think an advisor is great in starting out with that. And then the other thing I would say is, usually the investment part of it is really difficult because when you’re investing there’s always the risk that you could lose money. And so oftentimes, I’ll speak with investors who will say I don’t want to lose anything. I need to hold on to everything that I have. And so I think that’s where you really need to have someone kind of step in and kind of re-evaluate. I think that that’s a big part also.
You know something like that happens, is unfortunate, but you have to kind of re-evaluate. Okay, now this is your portfolio, what is it that you need this money to do for you, who are going to be your beneficiaries, how comfortable are you, those are some of the questions that you have to answer. And I think again an advisor is going to probably be your first step.
Beth Orford: Yes. So this is a related question. Maria, maybe I’ll turn it to you. Another one that came in earlier; Keith from Orlando, Florida: “So what can you do to make it easy for a spouse who has taken over managing the finances when they aren’t financially inclined? How can Vanguard help when the main person who has handled all of the finances has died?” So we may talk about trusts a little bit or something like that?
Maria Bruno: Yes, I mean certainly you know if you can have the proper planning in advance, and that certainly will be the legal documents, making sure you’ve got the beneficiaries aligned the way you want them to. Trusts, and there’s different types of trusts, can help with some of that when one spouse or partner passes away, because again the assets are managed based upon the terms of the trust, and then as an income beneficiary with, for instance, the surviving spouse or partner then can have the lifestyle and access to those funds. But it’s professionally managed potentially by Vanguard or a fiduciary—
Beth Orford: And the first transition is done fairly easily.
Maria Bruno: Absolutely, right. So the financial institution can certainly help through that. And it’s all outlined in terms of the document and there’s all different types of trusts. So you know certainly as part of an estate plan someone needs to go through these considerations to find out whether a revocable trust or an irrevocable trust. And that the terms of the trust are outlined. That is a step that certainly every individual or every couple should go through. So certainly if you can do that in advance, that certainly would have the security and the financial foundation for the surviving spouse subsequently—
Beth Orford: Yes, and Vanguard— Keith did ask what Vanguard can do to help. And Vanguard does have a nationally registered trust company. So the document that a— That someone sets forth, husband and wife, and says if the person passes it goes into the trust company, there’s a trust manager that’s assigned somebody who will take over that relationship. And in many cases you can talk on the phone to people ahead of time. So your surviving spouse can be comfortable with Vanguard when they may not have been involved with us heretofore.
Maria Bruno: Right, so there’s different ways that Vanguard can assist as a corporate trustee, or as an investment of the—or managing the investments of the—to the terms of the trust. So yes, I would be— I would encourage anyone to give us a call. And then you could speak with one of our associates or one of our financial planners to kind of walk through this and okay, here are the things that you can think about. Here are the things to help you have a better discussion when you go talk to an attorney to help figure out in terms of whether a trust is appropriate and what type of trust.
Beth Orford: Yes, and in some cases that trust can also be sort of manager-directed by a family member, maybe you know an elder child or something like that; Vanguard helps out with the investments. So there’s a variety of different ways to sort of make that a seamless transition for someone who’s not been very involved in the finances. Right.
We currently— Here’s another question from Aaron, in St. Peter, Minnesota: “We currently have separate accounts and one joint account where we transfer a lump sum each month. When we get married, should our personal accounts take less emphasis? Should we open new accounts?” How do we think about— We talked a little bit about merging afterwards, but these are more specific questions about account structures.
Kahlilah Dowe: Yes, and so I think it’s definitely good to consider. I’m glad to hear that he’s asking the question before they get married. I think it depends on what they’re saving for, because I’ve seen instances where the separate accounts remain separate because they’re designed to cover goals outside of the marriage. I like the idea of also creating a new combined account for your combined goals. So and I think we had mentioned this earlier, I don’t think it has to be one or the other. The other thing I found is that over time many investors will start to kind of merge things together as they get more comfortable, and as they define their goals, because oftentimes they don’t go in already knowing everything that they want to do, but as time goes on they kind of figure it out; they figure out how they manage money separately and together, and then based on their comfort level they’ll kind of go in and merge things. And so I think that’s something that could work.
Beth Orford: That’s great. And keep in mind that a lot of people are saving in their earning years. Primarily in 401(k)s and retirement accounts, right. Those are, by nature, separate accounts. So there’s a lot of assets that do stay separate throughout the marriage that you can’t pool and you know, is that fair to say?
Maria Bruno: Yes, and actually you were heading where I was heading—
Beth Orford: Okay.
Maria Bruno: In terms of, you know, just going back to the basics of making sure that that you are taking full advantage of tax-advantaged accounts. When we think about tax efficiency and how to manage costs in the portfolio, taking full use of tax-advantaged retirement accounts is key. And the other thing to think about too is if you have a married couple, that you can also, if you have a nonworking spouse, you can also maximize the use of spousal IRAs. So you may have a nonworking spouse, who could potentially also make a spousal IRA contribution. And it may not seem like much, an extra $5,500 a year, or $6,500 if you’re over 50, but it does through the power of compound can really add up over the years. So, I would just reinforce just making sure that you’re covering the basics in terms of how you’re saving and taking advantage of the different account types for each individual.
Beth Orford: Great. Great. Well, this hour has gone rather quickly. We are coming up upon time. So I just wanted to toss it out, are there any final thoughts, Kahlilah or Maria, that you’d like to share with the audience before we close out?
Kahlilah Dowe: Yes, so I would say if you have a situation where one person has already been doing the most of the financial management for the household, I realize that it can be tough to now bring someone in who is let’s say unfamiliar with it, or reluctant to, or even the opposite where you have a situation where you want to kind of jump in but feel kind of nervous about doing that, I always say start with the statements. That’s pretty basic, but I think it’s important because if you just go over the statements with that person that’s going to tell them many things that are important first, where all of the assets are held, second the types of accounts that you have, third how much you have, and also who the beneficiaries are. I think that’s an excellent way to get involved and kind of get a high level of your overall finances. So consider starting with that.
Beth Orford: Great. Great advice. Maria?
Maria Bruno: And you know, I would agree with Kahlilah, and I would also encourage in terms of you know if it’s something where your spouse or your partner has been taking care of this and you might have an interest or you’re just not sure, stick your nose in, right, stick your neck in and be a giraffe. Stick your nose in and say you know what I’m going to— I want to learn a little bit more so I’m going to stick my head in a little bit and start small. And you’ll find that as you said knowledge is power so you get more confidence, you get more comfortable, and you can actually feel like you’re actually more of a partnership in the finances. But to do it all at once is overwhelming, so really think about the big rocks, start there, and then you’ll find as a couple that you’ll find your comfort zone.
And the other thing too is you know, as a couple, if there’s children in the household as well you’re setting a precedent for the children as well. So having these conversations at the household level is a really good idea.
Beth Orford: That’s great. Great. Well, thanks so much. This was a wonderful way to spend an hour with the both of you and hopefully we helped people get a little bit more comfortable about sticking their nose in.
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