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Can a couple invest in the same set of mutual funds?

Do you look at your portfolio as separate or part of the whole? Maintaining a Chinese wall between portfolios of couples could mean that both might own a similar portfolio. Does that make sense, financially?

It’s all about partnerships in these times of lockdown. Obviously, you are working from home and spending more time with your spouse, while partnering in daily household chores. Does this partnering extend for family investments as well? 

Do you look at your portfolio as separate or part of the whole? Maintaining a Chinese wall between portfolios of couples could mean that both might own a similar portfolio. Does that make sense, financially?

Overlapping portfolio

Supposing a husband owns three equity funds (A, B and C), while his wife owns another set of equity funds (D, E, and F). In this case, obviously there is diversification. 

However, beyond a point, such diversification doesn’t help. Say, if they together own six large-cap funds, obviously it will lead to owning most of the stocks of an equity large-cap index. 

Besides, it also depends on the different categories of equity funds they own. For instance, owning two-three large-cap funds is sufficient; however, exposure to midcap funds will allow room for two more funds. A lot depends on the financial goals under consideration for the couple.

It is moreover, not just about diversification (as mentioned earlier) but also about focus. When a couple owns 25 funds, they might not bother about the underperformance of a single fund –as it constitutes only 4% of the overall portfolio. However, when they own just three funds, any underperformance hits them hard financially. So, they take the necessary action. 

Sharing vision

This highlights the crucial point of whether the couple shares a common vision when it comes to fixing family goals like that of retirement or a child’s education. As individuals, they might have an understanding and assessment of risk as well as investment preferences.  

One might prefer a lavish retirement lifestyle, while the other favours a frugal one. The target retirement nest will differ based on the retirement lifestyle one chooses and for how long the couple plan to work. It is therefore important that they talk about it with their partner and arrive at a mutual consensus. 

Prioritizing financial goals of the family and its segregation into short-term (say vacation, down-payment for home) and long-term (retirement, children education) will help in arriving at an optimal joint investment strategy to achieve those goals.

Two approaches

Once you have done that, there are two ways to work towards it. 

For one, each of them could chase separate goals. For instance, the wife could invest for a child’s education from her income, while the husband invests for retirement. Their fund portfolio might overlap but it doesn’t matter since they are working towards separate financial goals. 

This system works especially when both are earning and prefer to keep their finances separate. A joint bank account, in turn, takes care of household expenses. 

In the second approach, the couple combines their finances and invests jointly towards a goal. For instance, if both are saving for retirement, they would own three good-performing equity funds among themselves. If the husband owns fund ‘A’ and ‘B’, the wife will invest in ‘C’ to complement the former’s portfolio. If there is an overlap, they will prune the portfolio in unison.

Importance of focus

It is moreover, not just about diversification (as mentioned earlier) but also about focus. When a couple owns 25 funds, they might not bother about the underperformance of a single fund –as it constitutes only 4% of the overall portfolio. However, when they own just three funds, any underperformance hits them hard financially. So, they take the necessary action. 

Furthermore, by maintaining a small portfolio you can also keep track of its performance and weed out non-performers from time to time.

Working with investment experts

Sometimes, you might need the services of an investment expert to arrive at the middle path. A certified investment professional with good and relevant track record can help you with your financial planning. This, in turn, will let the couple know how much they need to save and prioritize their expenses accordingly. 

Takeaway

It is important for a couple to see eye-to-eye on their financial goals. If they are chasing different goals separately, then portfolio overlap is not an issue. However, when investing towards a common goal, it’s important their portfolio complements each other, like a perfect pair.

 

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