You and your partner probably share many common goals, such as the desire for a comfortable retirement. And you both may recognize the importance of investing to achieve these goals. But do you see eye-to-eye when it comes to investment risk?
The concept of risk tolerance involves emotions, so all of us bring something different to the table. You might say: “I prefer to invest aggressively, trying for the maximum growth possible." But your partner might respond: “I’m willing to invest more conservatively, sacrificing some growth potential, because accepting any losses, even in the short term, worries me.”
How can you reconcile these different views and find common ground? Here are some practical tips:
Talk about your differences
Having differences in risk tolerances between couples is completely normal. Everyone's risk tolerance is unique, but having a conversation about what drives it can be a very helpful step in finding a common ground.
Consider meeting in the middle
When your partner's risk tolerance and yours differ, sometimes meeting in the middle is a good solution. By meeting in the middle, the portfolio will incorporate each of your preferences and have a moderate amount of both conservative and aggressive investments than what it would have otherwise.
Consider the required risk to achieve your goals
Risk isn't just how volatile your portfolio is. It's possible to fall short of your goals because you didn't take on enough risk. Knowing the required risk (which goes hand in hand with return) for you to reach your goal can help facilitate a conversation about how much risk to take.
Revisit your risk tolerance
Risk tolerance can change over time. It's even possible for the partner with a lower risk tolerance now to have a higher risk tolerance in the future. Remember to revisit your risk tolerance on a regular basis so that it reflects your most up-to-date views on risk.
Above all else, keep communicating. In many cases, you and your partner probably want to reach the same destination – and by talking to each other, and showing a willingness to compromise, you can make the journey a smooth one.