Financial fix: When your risk tolerance differs from your spouse

toy.top.jpgKevin and Amy Toy, with their daughters, Jocelyn and Ava. For more couples undergoing a financial makeover, click here. By George Mannes, senior editor


(MONEY Magazine) -- During the 2008 market melt-down, Kevin and Amy Toy were a study in contrasts.

Kevin, who had invested nearly all of their retirement money in stocks, stayed calm. "I'm holding on for several years," he remembers thinking. "I sleep well at night."

toys_portfolio.gif

Not so relaxed was Amy, a former educator (she launched a summer camp at Sea World San Antonio) who was home full-time with their daughters, Jocelyn and Ava, now 14 and 10. "He said, 'It'll come back,'" she recalls. "I said, 'Are you kidding? We lost half our money!'"

Two years later, Kevin's steadfastness has paid off -- their portfolio is nearly back to even. But the fear divide remains.

The home they bought for $980,000 in 2007 has lost more than $300,000 in value. Kevin thinks the drop is irrelevant since they expect to stay put. Amy fears that the $788,000 mortgage threatens their retirement; she's training to be a nurse in part to help make extra payments.

Still unperturbed by market risk, Kevin's only fears are that investment expenses might be cutting into their returns -- and that maybe the couple aren't being daring enough.

THE STATS
  • Age: Kevin, 48, and Amy, 51
  • Occupation: Program manager (Kevin) and nursing student (Amy)
  • Location: Long Beach, Calif.
  • Income: $216,500
  • Assets: $743,000 in retirement savings; $99,000 in college funds
  • Goals: Retire at age 65 or later; pay for their two daughters' college education
THE PROBLEM

While Kevin deserves credit for not panicking, Amy is right that a 92% stock allocation is too risky, says Manhattan Beach, Calif., financial planner Eileen Freiburger.

The same goes for the girls' college savings plans, which are 100% in stock funds. The Toys are needlessly leaving themselves vulnerable to another big setback. With a less aggressive portfolio, "you won't miss it on the upside," she tells them. "You'll feel it on the downside."

THE ADVICE

Dial-back stocks: Hike their stake in cash and bonds from 8% to 27%, says Freiburger. Selling stocks shouldn't trigger a tax hit, since much of the Toys' money is in tax-favored accounts. And take advantage of the once-a-year chance to swap 529 investments and switch to funds that shift toward bonds as the girls approach college.

Think independently: Much of the Toys' portfolio has been invested, via their broker, in high-cost funds. Those fees might be worth it if they were getting comprehensive planning services, says Freiburger, but the Toys say they aren't. Kevin should consider running the family's money, using low-cost exchange-traded funds. "It may not be as difficult as you think," she says.

Prepay the house: The Toys can't refinance their 5.9% mortgage because their home is now underwater. But they are making extra loan payments, and Freiburger says that's smart. The interest deduction is not a compelling reason to draw out the loan. They'll enjoy peace of mind from an early payoff.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.32%4.26%
15 yr fixed3.36%3.27%
5/1 ARM3.37%3.27%
30 yr refi4.31%4.24%
15 yr refi3.34%3.25%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 11:02am ET
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17

Sections

GM won't have to tell customers to keep their recalled cars parked until fixed, after a federal judge denied emergency motion Thursday. More

Obamacare sign ups hit 8 million, though final enrollment remains to be seen. More

Office for iPad move is a symbolic victory for Nadella's Microsoft, but the company is still weighed down by many of the same old issues. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

As Detroit moves closer to reaching a bankruptcy deal, retired civilian workers are poised to be left worse off than firemen and police officers. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.