Money makeover: Investing opposites

She's willing to be aggressive, he's not. To meet their long-term goals, the Hickses need to invest on the same page.

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By Yuval Rosenberg, Money Magazine contributing writer

The Hicks family
  • Learn to invest as a couple
  • Sell their home and move to nearby Fort Collins
  • Save money for their sons' college costs
  • $450,000 in home equity
  • $662,000 in retirement plans
  • $83,000 in taxable accounts
  • $150,000 in cash/emergency savings
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(Money Magazine) -- There are certain things that Charlie and Sandy Hicks love to do together - like ski, hunt and hike with their two sons near their Livermore, Colo. home. Then there are things the Hickses hate to do as a couple - like invest their money.

Sandy, 48, notes that she and her husband "have completely different mind-sets" when it comes to managing their portfolios. "I'd rather buy mutual funds," says Sandy, who used to keep 100% of her 401(k) in equities.

Under most circumstances, "Charlie would rather keep everything in a checking account," she says. Well, that's a bit of an exaggeration, though Charlie, 49, does hold about two-thirds of his 401(k) plan in fixed income.

Where they are now

Now, there are times when each spouse has been willing to see things the other's way. In the late 1990s, when stocks were soaring, conservative Charlie kept a slight majority of his money in equities. And as stocks have soured recently, aggressive Sandy has kept $100,000 of her retirement funds in cash. But the couple want to know which of their approaches will be right in the future -

Together the couple (he works for an agricultural chemical firm and she's an environmental engineer) earn roughly $170,000 a year. And they have amassed more than $700,000 in their combined accounts.

Charlie and Sandy also recently finished paying off the mortgage on their three-bedroom, $450,000 home, which sits on 25 acres in Livermore. The Hickses want to move to nearby Fort Collins, where sons Tyler, 14, and Jason, 12, attend school. But they also have differing ideas on how to handle that. Sandy wonders if they should rent their existing home; Charlie simply prefers to sell.

What they should do

Be more aggressive. When it comes to their investments, Charlie's "better safe than sorry" approach is currently winning the day. Only about a third of the couple's combined portfolios is in equities.

That strategy recently helped protect the couple's net worth of $1.4 million, which includes their home equity. But Arlen Olberding, a financial planner in Fort Collins, reminds the Hickses that retirement is still at least 10 years away - and could last another 20 to 30 years. So he suggests a new mix of 60% stocks and 40% bonds, anchored by low-cost index funds like Fidelity Spartan 500 Index (FSMKX), which is in the Money 70, our recommended list of funds. While this is less aggressive than what he normally recommends to a couple this age, Olberding says it should be adequate, given how much this family has saved.

Even so, it's hard for Charlie to swallow. "I always liked it the other way - 60% more conservative and 40% in the stock market," he says. "Can Sandy do it her way and I do it mine?" he asks, half jokingly.

The Hickses decide to take the advice but agree to shift to more stocks using Sandy's accounts. They realize that it doesn't matter whose account they use. But this way Charlie will have the psychological comfort of knowing his 401(k) is safe. And as a couple the Hickses will know their nest egg has a good chance of growing - and beating inflation - over the long term.

Redeploy their cash. The couple have $85,000 stashed in checking and savings, with another $65,000 stowed away in their "boat fund" - for Charlie to use at some point in the future. Olberding says the Hickses should earn more from what they sock away for intermediate-term goals, like the boat fund, which is growing less than 1% annually. That should be put in higher-yielding long-term CDs, the planner says. As for emergency savings, they need to keep only six months of expenses, or about $50,000 at most.

Sell, don't rent. Sandy raises the notion of renting their home. But Charlie doesn't want to be a landlord - and since renting their house is likely to end up costing them cash each month after factoring in maintenance and other costs - Olberding says selling is probably a better choice.

In theory, they could use the proceeds to buy a home in Fort Collins without a loan. Then the cash that would have gone to monthly mortgage payments could go to saving for college. But because their oldest is already 14, the planner suggests setting aside $50,000 from the sale to open 529 college savings plans for the boys.

The makeover

While this might mean having to take out a small mortgage, Olberding says that's okay since the Hickses would get state tax deductions for their 529 contributions (if they choose a Colorado plan) and federal deductions for mortgage interest. Ever the worrier, Charlie says he's not sure about using their home to invest in a 529. But he and Sandy agree to at least consider it

  • The problem: They're at least 10 years away from retiring, yet the Hickses invest as much in cash as in equities.
  • The plan: Put at least 60% of their combined portfolios in stocks and limit their emergency fund to six months of expenses.
  • The payoff: This mix should help the couple grow their nest egg over the next 20 to 30 years while still offering some downside protection.
  • The problem: Charlie wants to invest more conservatively than Sandy. But neither knows how the other is managing money.
  • The plan: Coordinate their strategies but use Sandy's retirement accounts to boost their exposure to equities
  • The payoff: This way the couple will collectively be more aggressive. But Charlie will have peace of mind that his 401(k) is safe.
  • The problem: The couple can't decide if it's better to sell or rent out their Livermore house when they move.
  • The plan: Sell the house, especially since Charlie doesn't really want to be a landlord.
  • The payoff: The bonus: They could use some of the proceeds to fund 529 college savings plans for their two sons.

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