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March 13, 2006
Investing with the Newlyweds
I had sushi this weekend with my favorite newlyweds. That is my favorite newlyweds now that Jessica Simpson and Nick Lachey have split. (A moment of sadness for there will no longer be such classics as Jessica's confusion over tuna fish.)
Anyways, between sips of sake, we got to talking about finances. Okay, admittedly the conversation got started one of my friends pulled out a spreadsheet of their portfolio. Yes, this speaks volumes of me and my friends. We are that nerdy.
Like many consumed with marital bliss, they??e decided to merge their investments and wanted some advice. Frankly, there isn?? much of a difference between a portfolio for a singleton and a couple. The same asset allocation rules apply. For my friends, I recommended an aggressive mix of stocks and bonds (okay, basically no bonds) since they??e just entering they??e thirties and this money is earmarked for their retirement.
The key for them, and really any couple, is to look at their investments as one giant pool of money??ven if that money like theirs is spread across two 401(k)s, a Fidelity brokerage account, and an IRA. What do I mean by that? Each separate account doesn?? need to be diversified with the right mix of large-cap domestic stocks, international, small cap and so on. What matters is that the entire pool of money is diversified. That means one 401(k) could have the international holdings while the IRA covers the domestic equity allocation.
In fact, diversifying each account may actually work against you. Not only do you have to keep tabs on all those investments. But the chances are also pretty high that if you own five different large-cap U.S. stock funds, they are invested in many of the same types of companies, if not the same exact ones. That means those five funds are not doing much in terms of diversifying your portfolio.
So my advice is keep it simple. There?? really no need to own more than six to eight mutual funds. Indeed, you can get plenty of diversification from owning just two funds??ike Vanguard Total Stock Market and Vanguard Total Bond Market. (I call it the lazy person?? portfolio.) If you??e feeling fancy, you can spice it up with an international and a small-cap offering. Hey, you can even get crazy and add a real estate fund. Now that?? living on the edge.
I??l have to take a closer look at my friend?? investments before I offer them some suggestions on that front. Although my advice is usually the same: stick to low-cost index funds if you can. Perhaps we can have that discussion over some of their homemade thin-crust pizza I love (hint, hint??ey guys, I??l even provide the wine.)
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