Monday, August 19, 2013

Family Money Fitness Program: Investments

Extract from Chapter 10. Make Your Dreams Come True:  Strategies to Make Your Family Financially Successful

So far, this book is about how to generate savings while being on the same page with your partner. But the ultimate goal of your family is to make the following transformation: 

I can’t go on about investments in detail, as it might take us another hundred pages. Nevertheless, let me point out a few steps needed for a couple to start the personal-investment journey. 

First of all, both partners should take a 5-minute test to determine the kind of investor they are. You can find it at

Here is the story from my marriage about investing. I am a naturally “aggressive growth” investor looking for high returns. I have been winning big and losing money badly on stock exchange during my career. At the same time, my wife is a conservative personality, who prefers reliable investments. There’s absolutely no way we would invest “ours” money into start-up or stocks. You just can’t change those values and must find a workaround or solution. We had never come to that stage, but the solution is simple—diversified portfolio of family investments. 

Generally speaking, your family-investing options are within the following traditional investment categories:

I don’t have any pension plans (401k, Roth 401k, Roth IRA, TFSA, RRSP) listed on the chart because: a) you can’t get them in every country and b) if you can get one, you should get one of them for tax benefits anyway. And just to note, people who live in the United States and Canada are really lucky to have many retirement options, since there are no individual pension accounts in my country. The only singular option we have here in Ukraine is a collective state fund, which is leftover from the communist era. 

The “own business” option stands out to a certain point, since it’s often not only about the money and returns. I work with small businesses as a consultant, so I’ve seen many small-business owners making less money than in the corporate world, but enjoying their work-life a lot more. Again, since this is a book on home finances, I don’t want to divert the discussion to the entrepreneurial way of life. I am just giving you a glimpse of your options.

Finally, besides those listed at the chart, there are alternative investments, such as gold, hedge funds, commodities, venture capital funds, financial derivatives, etc. One rule of thumb you should follow: “Don’t understand them? Don’t touch them!” But the flip side of the coin is that you can educate yourself.

Dave Ramsey strongly advocates that mutual funds are the best investing option, but I would say that although they are trustworthy, mutual funds are not the only option available. The best advice I can say is to find a professional to help you structure the investments, if you are not an expert yourself.

Before we leave the topic of investment, I would like to emphasize that in investments, the higher the risk, the higher the return. In the chart above, bank deposits give you the least return, but they are also the least risky.


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