6 Questions If You’re Within 5 Years of Retirement at ExxonMobil
The couple walks into our conference room and sits down at the table. We offer coffee or soft drinks, exchange pleasantries about the weather or the Astros, and thank them for becoming clients.
Before long, the conversation turns to how we will invest his EMSP account, their IRAs and their brokerage account.
“So,” we ask, “how comfortable are you investing in a diversified portfolio of about 60% stocks and about 40% fixed income or bond funds?”
Why might a simple question generate much discussion or even outright disagreement?
The answer: money is emotional.
Their investments, the money they’ve saved, is the basis for retirement and their dreams for the future.
It’s to provide that home on the lake, the financial legacy to leave the kids, the freedom to do what they want after they stop working, the travel plans, and the education for the grandkids. All those hopes and dreams surface when there’s a big decision about money.
Couples come to the question from varying backgrounds and experiences.
- One or both may be relatively uninformed, unsure what a bond is or what owning a stock means.
- One may have followed the stock market for years, while the other prefers to ignore Wall Street.
- One likes taking risks (“no risk, no reward!”), while the other wants to sleep soundly at night, knowing their money isn’t subject to market volatility.
- Their goals may be different. One wants to live big in retirement and leave the undertaker with an unpaid bill, while the other fancies a quiet life at home with a chunk of change left to the kids.
- One lived on the wrong side of the tracks as a child and saw parents spend money foolishly, while the other began a savings account at nine.
So, how should couples and their financial advisor attempt to reconcile these divergent views?
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Approach # 1: Education can inform decision-making
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Couples may lack a basic understanding of investing. Telling someone their feelings are wrong or should know more than they do is a losing proposition. Acknowledge the desire for safety or lack of experience someone may feel. Historical data showing returns of stocks over bonds despite higher volatility and the long upward trend of a balanced portfolio may comfort the novice investor.
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Approach # 2: Meet in the middle
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If a couple disagrees about the percentage of stocks in an overall portfolio, It’s possible to blend investment preferences into a middle ground, combining an aggressive strategy with a conservative one. The result is a balanced or moderate investment approach. If she wanted all stocks and he wanted all fixed income, a 50-50 mix of stocks and bonds might enable each to feel their preferences were taken seriously.
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Approach # 3: Take the holistic view
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In discussions with clients, we often point out that an investment portfolio is only part of their wealth. We encourage ExxonMobil employee clients to consider their pension benefit as they invest their EMSP—the pension benefit doesn’t depend on stock market performance; it can be taken either as an annuity (effectively, fixed income) or as a lump sum (cash). Additionally, many couples have equity in their home and prospects of Social Security benefits that may provide a healthy percentage of daily living expenses. These other assets mitigate the “risk” of the EMSP or other equity-heavy investment accounts. A partner who seeks safety can appreciate that the “risky” investment account is not all the couple’s wealth.
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Approach # 4: Match strategy with cash needs
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Most advisors agree that investing cash needed within a couple of years in stocks or intermediate or long-term bonds is not prudent. Market corrections are commonplace; you don’t want to have to raise cash by selling stocks at the bottom of a bear market. The person desiring security can legitimately seek a conservative investment for assets to fund near-term needs. Retirement assets invested for ten or more years should be able to ride out market volatility. Couples should consider the timing of cash needs in determining an appropriate investment strategy. Safety is a good attribute for near-term needs.
Investors should be comfortable with how they are invested. No portfolio is so good that it justifies damaging a marriage. For many, the secret to financial success is less about portfolio composition than controlling spending and the urge to sell when markets are down or buy as markets soar.
Agreeing from the start of your relationship on an investment strategy is terrific if it happens, but making concessions to keep both parties engaged and invested is a good strategy, too. A fiduciary financial advisor can serve as a neutral party to help develop an investment strategy you both can live with. Let’s talk!
Meet Doug Garrison
Doug is a Partner based in the Houston office and a member of the firm’s Wealth Management practice. He is responsible for delivering investment...Read more
Meet Doug
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