Married? How to Manage Both 401(k)s Properly
January 14, 2011 | By Steven DiGregorio
So what should we call this process? “Marriage Diversification”? If a married couple each have any retirement plan be it IRA, 401(k), 403(b) or other, managing the assets appropriately can be challenging.
Couple Planning Together
- Should they each have the same funds in their accounts?
- Should they pick different but similar funds?
- Should one portfolio be aggressive and the other more conservative?
Ideally, a husband and wife should collaborate on their retirement planning, including choosing investments. Unfortunately that doesn’t usually happen. A 2009 Fidelity study of more than 500 couples found that only 38% made joint decisions together about retirement finances.
That said, it doesn’t necessarily follow that working as a team means you and you must have completely different investments in your 401(k) plans either. In fact, such an approach could make it more difficult to manage the retirement portfolios. Depending on how similar the choices in your plans really are, the ability to provide a quality diversification advantage may not be possible.
Basically, even though you have separate retirement accounts, you are essentially investing one pool of money that you will both depend on in retirement. So your goal should be to create the best overall portfolio with the entire pool. That being said, you probably have different opinions and views regarding risk and exposure to certain areas of the market.
- Manage the same – Let’s start with the understanding that you both have decided to manage the assets as one pool with the same strategy. The challenge is then to agree on the asset allocation percentages. Compromise is key. Once you decide upon the allocations, research each offering set to determine which options in each plan fit the strategy. Be aware of factors like fees, performance consistency and risk. Now model the portfolios to be as closely similar as possible thereby creating essentially the same portfolios. The drawback here is that you don’t have any more diversification than you could each achieve on your own in your individual portfolios.
- Manage Similarly – Should you have different choices in your 401(k)s, this would be a good option. Maybe one plan has a particularly good large-cap value fund but the large-cap growth choice is better in the other plan. Maybe there are entirely different offerings, i.e. one plan includes a short term bond choice and the other has an emerging market fund. Pick the best options and allocate as one large pool of assets. This practice will necessitate that you evaluate the strategy performance by reviewing the entire picture. The advantages being stronger diversification choices and enhanced performance/cost than in managing the same (1). The downside, this can be complicated to evaluate well. Consider using an Investment Advisor, usually for a small fee, to get it right. Then you’ll have the peace of mind knowing there’s a professional opinion involved.
- Manage as separate accounts – It is a common strategy to manage these monies separately with individual views as to risk and preferences. Evaluate your personal ideas, comfort with risk and performance expectations before embarking on this strategy. Of course you would again research the individual choices in each plan with no comparison to your spouse’s portfolio. After building your own portfolios, you should then have a professional evaluate the synergy of the two portfolios together. Performance & risk will both be affected when you view this in its entirety. You may find that some small, refining changes could be made and will be acceptable to both parties.
The bottom line is that Marriage Diversification will prove beneficial from many perspectives. Clearly, these strategies involve careful consideration of your personal circumstances and individual views. Ultimately, the idea is for you to consult each other about the process of investing in your 401(k)s and plan your retirement in together. It is always a strong recommendation to hire a professional investment advisor to assist, recommend and continually monitor & assess your overall performance and strategy.
For more information contact us at 845.563.0537 or Contact@CompassAMG.com
The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affilliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.
401(k), 403(b), 457, investing, investment advisors, investment strategies, IRA, Marriage Diversification, pension, retirement, retirement income, retirement plan, Retirement Planning, rollover IRA, ROTH
STEVEN M DIGREGORIO is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.
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