MarketWatch recently ran an article highlighting what it called the Worst money mistakes you can make at any age. Sitting near the top of the list was a financial trap that would hinder even Houdini, a misstep so severe that anyone taking it would surely never be able to recover (okay, I’m embellishing just a bit). What is this major money miscue? It is for married couples to combine their finances.

The article was aimed at women, and cautioned that many…

…make the mistake of combining all of their income, investments and financial accounts with those of their spouse or partner. If those relationships eventually come to an end, they often end up less financially secure than they would have been if they had kept some of their finances separate.

MarketWatch quoted Certified Financial Planner Wendy Weaver, who advised:

“Keep your own checking account and deposit your income in it. Then you can share expenses out of a joint account into which you both contribute proportionally.” She also recommends keeping any investment you bring into a relationship in your own name.

The MarketWatch article reminded me of a Today Show segment I saw a few years ago about “financial infidelity.” The host mentioned the results of a Money Magazine survey in which:

  • 71 percent of married Americans acknowledged keeping secrets about their spending from their spouse
  • 44 percent said keeping secrets about money is acceptable under certain circumstances
  • 40 percent admitted that they tell their spouse they spent less on purchases than they actually did (women lied mostly about clothing, shoes, and things for kids; men lied mostly about things for the car, entertainment, and sports tickets)

When the Cure is Worse Than the Disease

For help interpreting the survey’s results, Today turned to two financial experts.

Expert number one, host of a cable TV show about money, said, “I don’t think financial infidelity is all that bad. I mean, women need to have independence in their relationship and they need to be able to have private numbers that they can do whatever it is they want with.”

Expert number two, Today’s resident financial authority and a personal finance author, tempered things a bit by saying, “I agree, except that let’s acknowledge that we’re each going to have this pool of money that we can do with what we want and we don’t have to talk about it.”

She believes couples should keep three bank accounts: “One for me, one for you, one for the house. And the house gets taken care of first.”

To which expert number one responded, “Oh my gosh, without a question you should have separate bank accounts. I mean you should be able to do with your money whatever you want to do with your money.”

The host concluded the segment by saying, “Good advice.”

I concluded watching the segment by saying, “huh?”

Separate Accounts, Separate Lives

Divorce attorneys have told me that when money is the issue that brings a couple in to see them, as is it often is, the specific issue is usually that the husband and wife were living separate financial lives. Over time, one spouse trashed their finances, usually by racking up a lot of debt. By the time the other found out, it was too late. Not only were their finances a mess, but now all respect and trust had been lost as well.

Let’s face it, there are plenty of factors that tend to make money a tough topic for married couples. There are deep-seated family of origin habits and points of view about money that impact each spouse in ways they may not even realize. There are temperament differences that are very often really the cause of many financial disagreements that seem to be about something else. And there are often a whole host of unspoken money-related hopes, dreams, and fears.

With all of that working against us, we don’t need to introduce systems that foster separateness. We need systems and structures that create teamwork, openness, and honesty.

In part, that means combining financial accounts. Of course, some can’t be combined. An Individual Retirement Account is, after all, individual. But those accounts that can be combined should be, including checking and savings accounts.

It also means both spouses should have easy access to the household’s complete financial picture. How much income is coming in? How much is going out and where is it going? How much is being invested and where? How much is being given away?

In our household, Mint provides much of this information, automatically tracking and updating our financial picture. All either of us needs is Internet access and we can see the current state of our finances.

Freedom Doesn’t Require Separate Accounts

One point made by expert number two that I agree with to a degree, was this: “Let’s acknowledge that we’re each going to have this pool of money that we can do with what we want and we don’t have to talk about it.”

Jude and I each have individual clothing budgets.  Each amount is a line item on our household budget.  We each have the freedom to spend that money as we want, but we’re accountable to manage to the number. And we usually do talk about what we buy. Other couples use such budgeted amounts for lunches with friends, hobbies, etc.

You don’t need to live separate financial lives to have some semblance of freedom in marriage. You each just need a budgeted amount you can manage.

What’s your point of view on this? When a couple gets married, should they combine their finances or keep them separate?

 

Matt Bell

By Matt Bell

Matt Bell is Sound Mind Investing’s Associate Editor. He is the author of three personal finance books published by NavPress, leads workshops at churches and universities throughout the country, and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.

The deluge of negative market stories is continuing, with warnings of bubbles and crashes just around the corner. Apparently it’s not just financial journalists who are feeling anxious. As the Wall Street Journal reported:

Anxiety levels have grown since the spring of 2013, when the Federal Reserve indicated it would trim the stimulus that has supported markets since 2008. The Dow is up 154% from its March 2009 low.

Professional investors such as pension funds, insurance companies and hedge funds have reduced stock ownership since the spring of 2013, according to government data. Investors have shifted toward Treasury bonds. The 10-year U.S. Treasury note Wednesday yielded just 2.41%, its lowest level in more than a year. (Yields fall when bond prices rise.) Money managers are sending clients reports discussing whether stocks are in a bubble. To protect themselves from declines, people are buying options at higher rates than at any time this year, said Phil Roth, an independent market analyst. These are signs of caution, not euphoria.

It turns out it’s not just mom and pop who are nervous. Check out these numbers regarding what the pros have been doing with their allocations:

Wall Street strategists today are bearish. They recommend that investors hold just 51% of their money in stocks, far below the average recommendation of 60% over the past 15 years. That is well below the peak of 66% before stocks started to crumble in 2007. …

Mutual-fund data, meanwhile, indicate the same pessimism. Mutual-fund holdings of stocks whose performance depends on strong economic growth are the lowest since 2009, Merrill said.

“They are basically in the bunkers from a positioning standpoint,” Ms. Subramanian said.

You may have heard the expression that the stock market climbs “a wall of worry.” The idea is that the market typically continues to rise as long as there are (seemingly) legitimate reasons for people to be worried. It’s actually once everyone stops being nervous that the party is over — at that point everyone has bought in and there is no one else to buy!

As David Rosenberg sums up in a recent article, “The problem — as we have seen time and time again — is that the more the masses believe we will get a correction, the greater are the odds that it will not materialize.”

Don’t be nervous that you’re seeing so much negative press about the market these days. The time to be nervous is when you STOP seeing it!

Mark Biller

By Mark Biller

Mark Biller is Sound Mind Investing’s Executive Editor. His writings on a broad range of financial topics have been featured in a variety of national print and electronic media, and he has appeared as a financial commentator for various national and local radio programs. Mark is also the Senior Portfolio Manager of the SMI Funds.

This week’s picks for the best in personal finance from around the web.

What could go right for active management (Morningstar). The latest in the growing debate between actively managed mutual funds and index funds. Remember, this typical active/index framework misses the third path of mutual fund investing.

What today’s economic gloomsayers are missing (Wall Street Journal). When you look beyond the usual economic indicators, the future looks very bright.

How much do you need to retire happy? (Reuters). It may be less than you think.

Actually, some material goods can make you happy (The Atlantic). You may have heard that experiences make us happier than things. But some things are all about the experience.

New FICO criteria could help borrowers (Chicago Tribune). It comes with the territory of our binge/purge economic cycles. As times get better, credit standards get looser.

And from the blogosphere…

1 chart shows just how badly average investor lags—even cash (The Tell – a MarketWatch blog). It takes a lot of effort—and fear—to under-perform cash!

Everyone’s a financial expert during a raging bull market (Pragmatic Capitalism). This post reminded me of something a commercial airline pilot friend of mine once said: “Flying can be hour after hour of sheer boredom, interspersed with moments of sheer terror.” Whether you’re an airline passenger or an investor, it’s during those moments of terror when you’re glad there’s a pro at the wheel.

3 mistakes of unhappy retirees (Clark Howard) Thanks to SMI reader Ron S. for pointing to this helpful article on the SMI member message boards.

The man who moved markets (The Reformed Broker). For market timers, success is oh so fleeting, as described in this chapter from Josh Brown’s latest book.

How to eat on $4 a day (Get Rich Slowly). Trying to get your grocery budget under control? There’s a free e-book for that.

We’d love to hear your responses to any of the above. To weigh in, just meet us in the comments section.

Matt Bell

By Matt Bell

Matt Bell is Sound Mind Investing’s Associate Editor. He is the author of three personal finance books published by NavPress, leads workshops at churches and universities throughout the country, and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.

Add one more voice to the chorus singing a cautionary song about retirement planning.

According to the fourth annual Boomer Expectations for Retirement study from the Insured Retirement Institute (IRI), just 35% of Boomers are extremely or very confident they are doing (or did) a good job preparing financially for retirement—down from 44% in 2011. (IRI is an association of financial professionals involved in the retirement income industry.)

The IRI survey of 800 Americans between the ages of 51 and 67 found that similarly low numbers of Boomers are confident about having enough money to take care of medical expenses in retirement (36%) and having enough money to live comfortably in retirement (33%).

The study also found that Boomers have become clearer about their intended retirement age, and that age is trending older. In 2011, 65% said they knew when they would retire. In the latest survey, 83% said they knew, with the percentage pegging their retirement age to 70 or older rising from 17% in 2011 to 28% in the latest survey.

In a related finding, 40% said they expect that employment during retirement will be a major source of income in retirement.

The concern here is one we’ve highlighted before. On the one hand, a growing number of current workers are planning to work past the traditional retirement age and/or are counting on working for pay to some degree during retirement. On the other hand, other research has found that about half of today’s retirees actually retired earlier than intended and just 25% have worked for pay after retiring from their main career. Oftentimes, health problems prevent people from working as long as they planned to, and the older you get the harder it can be to find paid work.

One other finding from the IRI report may be of interest to the children of Baby Boomers: Whereas nearly 67% of Boomers surveyed in 2011 said they believed leaving an inheritance was important, today that figure has dropped to 46%.

What’s your intended retirement age? And what’s your backup plan in case you’re not able to work that long?

Matt Bell

By Matt Bell

Matt Bell is Sound Mind Investing’s Associate Editor. He is the author of three personal finance books published by NavPress, leads workshops at churches and universities throughout the country, and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.

It’s been over a year since I wrote Up is Down and Down is Up (membership required), an early explanation as to why good economic news was beginning to cause bad reactions in the financial markets. That article began this way:

We’ve recently entered bizarro-investing-world, where good news is bad for the markets and bad news makes them perform better. This has happened many times before, as it’s part of the linkage between the Fed’s interest rate policy and the financial markets. But it’s often confusing for investors, especially newer ones who haven’t been through it before, so here’s a primer to help you sort it out out.

A couple of weeks ago, the markets acted out in a similar fashion to what prompted that earlier post, with the Dow and S&P 500 each down around 2.7% for the week. Should investors be worried?

First off, a 2.7% loss for the week isn’t really a particularly big deal. It may feel like it, given that we’ve had such a docile market the past few years. But it’s really just noise.

Second, seeing the markets react negatively to positive economic news this late in a bull market shouldn’t be unexpected. Again, from last year’s Up/Down post:

So as you see the markets moving up and down in the weeks and months ahead, keep in mind that the explanations that accompany these moves are basically going to be the opposite of what you’d otherwise consider to be good or bad. Economic growth is perking up? Expect stocks to fall, as it makes it more likely the Fed will end QE sooner. Unemployment numbers suddenly get worse? Expect stocks to rise, as real-life weakness makes it more likely the Fed will continue to prop up the markets via QE.

We’ve reached the point in time where good is bad, and up is down. And we could be here for a while.

Indeed we could, because here we are over a year later with the same situation repeating. The market’s recent drop seemed to be instigated by the Fed’s more upbeat assessment of the economy, combined with better than expected news on economic growth and unemployment. That good news led to the “bad news” interpretation that the Fed may kill the party sooner than expected by raising interest rates.

From a recent Barron’s Up & Down Wall Street column:

The travails of the bulls seem to lie closer to home — that the inevitable day when they would have to bid farewell to their BFF, the near-zero interest rates engineered by the Federal Reserve, may be drawing closer. That’s because the Fed may be able to unfurl the “Mission Accomplished” banner on its goals of boosting employment and bringing inflation in line with its target.

The strongest sign of that came in Thursday morning’s report of a 0.7% quarterly increase in the employment-cost index for the second quarter, substantially greater than the median forecast of a 0.5% rise and more than twice as much as the first quarter’s 0.3% uptick. The latest quarter saw a 0.6% gain in wages and salaries, combined with a 1% jump in the cost of benefits. In other words, American workers were getting raises, a sure sign of a better labor market.

That followed news on Wednesday morning of a 4% annualized expansion in gross domestic product in the second quarter, a sharp rebound from the revised 2.1% yearly pace of contraction during the weather-affected first quarter, a better-than-expected showing. …

Good news on the economy brings forward that day when interest rates move from an irreducible minimum to a merely low level. Federal-funds futures contracts project an overnight money rate of just 0.75% by December 2015, up from the Fed’s current 0%-0.25% target. By the end of 2016, the futures market sees a funds rate of 1.75%. Relative to the Fed’s current stance, that constitutes a tightening — not merely a small correction of current abnormal conditions.

Last summer, the stock market dropped 5-6% when the Fed initially detailed its plan to gradually exit Quantitative Easing. That move took the S&P 500 from 1667 down to 1573. Since then, the market has roared ahead over 26%, to as high as 1991 for the S&P 500. Now, as then, there are concerns over when Fed tightening will eventually choke off this bull market. Now, as then, those concerns may be premature. It’s hard to say for sure, because eventually, those concerns will likely turn out to be correct. The question (as always) is when.

The Fed’s current trajectory will have it ending QE by this October. That, along with improving economic conditions (and correspondingly, higher inflation readings of late), make those Fed Funds futures expectations seem a bit mild. Just 0.75% by the end of next year and 1.75% by the end of 2016? I’ll take the over.

Be that as it may, the bigger point is that last week’s market disruption wasn’t anything new. We’ve seen that script before and it didn’t mean the onset of anything particularly dire. We’re half way through the most unfavorable six months of the election cycle, but we still have the August/September/October gauntlet ahead. So we won’t pretend that this couldn’t lead to a full-blown correction. But we’ve been writing about that possibility for months, so should it really shake our confidence if it comes to pass?

That said, there’s nothing particularly novel going on that would make such a decline obvious. Other than the fact that we’re another year further along into this bull market since we first penned this analysis. Eventually, higher rates will likely end this bull market. But so far, it’s just talk. And like a year ago, it would probably be a mistake to get overly spooked by that chatter.

Mark Biller

By Mark Biller

Mark Biller is Sound Mind Investing’s Executive Editor. His writings on a broad range of financial topics have been featured in a variety of national print and electronic media, and he has appeared as a financial commentator for various national and local radio programs. Mark is also the Senior Portfolio Manager of the SMI Funds.