Getting on the same page, understanding market volatility

NEA Today, Feb 2001 by Rowland, Mary

Q: Please help me find some investments for the money in my savings account. If I don't invest it, my husband will spend it.

A: I received this question a while ago, but I've been sitting on it. saving it for ValenOne's Day. Here's why: I have some ideas for Investments for a beginning investor. But I believe this couple has a more basic problem: They don't see eye to eye about money. She understands the need for saving for future goals. He spends the money they make as soon as it's available.

Money trips up more marriages than any other issue. More than sex. Yet most couples don't talk about money. They wait until they're past the talking phase. By the time money comes up, they're usually shouting.

Often each spouse has a secret agenda, with plans to carry it out. That's how I see this woman. She plans to force her husband to save because she knows that's what's good for him-and them. So rather than discussing money with him and setting goals, she's going to sneak the money away into a place where it's inaccessible. If he can't see it, he'll never know he had it.

In other instances, I've seen women on the other side of the fence. For instance, women have told me that they hide purchases they make because their husbands would get angry if they knew how much money they spent. Or, they lie to their husbands about how much something cost. Husbands, of course, often do the same thing.

None of these strategies makes for a good relationship, or helps you accomplish your money goals as a family. The best way to do that is to sit down and talk through your financial plan.

Every family should have short-- term goals, like buying a house, taking a college course, going on vacation, or remodeling a bathroom, as well as long-term goals like retirement, college education for the kids, maybe starting a business or a second career. These things don't happen by accident. You must plan for them and save money to make them a reality.

I think Valentine's Day is a good time to sit down and make a list of your dreams, even the ones that seem unattainable. Why not have each partner list their top three dreams. Then go out for a Valentine's dinner and talk them over.

Q: What is beta!

A: That's a question I haven't heard for a while, and it shows that someone Is getting serious about learning the terminology of investing. Beta is one of the tools of modem portfolio theory. It measures the risk or the volatility of a stock or mutual fund relative to the market as measured by the Standard & Poor's 500 stock index.

The S&P 500 is assigned a beta of 1.0. So a stock or fund with a beta of 1.5 would be 50 percent more volatile than the market. That means you could expect it to go up 50 percent more when the market goes up and down 50 percent more when the market goes down.

Likewise, a fund with a beta of .75 is less volatile than the market. In an up market, you can expect this stock to gain 25 percent less than the overall market. In a down market, it'll lose 25 percent less.

Betas go in and out of favor. They are certainly not the key factor when choosing a stock or mutual fund. But betas can be an interesting piece of information for those thinking about how to measure investment risk.

Q: My husband and I have written wills. Still, if something happened to either of us, I'm not sure we'd know where to find all our papers.

A: I'll bet most of us share those kinds of thoughts. My husband and I have wills, too. But if someone had to come in and dig out all of our papers to execute our wills. it would be a tough job.

Writing a will is an important first step, one that too many people fail to make. Yet, as you suggest, it's not enough. Each of us must also put together a list or a letter to the executor of the will that details where to find important documents.

This list would include insurance policies, bank accounts, stock brokerage accounts, house deeds, and mortgages, as well as personal papers like birth, marriage, and divorce certificates.

There are books and software products that are very helpful with this chore. One of them is the Beneficiary Book at www.beneficiarybook.com. The book looks intimidating at first. You're asked to list everything, including your doctor, your dentist, and your vet.

But I'll bet it's a good feeling to get all that housekeeping done. And it could save someone a lot of distress in any number of situations.

-Mary Rowland

Rowland is a contributor to several financial publications.