A Fin24 user wants to know the investment implications of getting married out of community of property, with accrual and exemptions. He writes:
My fiancée and I are considering investment options for when we get married (out of community of property, with accrual, with exemptions).
We'll both have separate investments (equity, retirement annuities, etc), but we'd like to have a joint vehicle so that we can invest in opportunities together.
In terms of contribution towards this joint investment account, should we both give a fixed, equal amount each month, say R5 000 each, or should we instead each contribute a fixed percentage of our disposable income, say 20% of our after-expenses cash?
The thinking behind a fixed equal amount is an equal monetary contribution, so that each partner is equally invested.
The thinking behind a proportional, percentage-based approach is that while the higher earning partner contributes more, his or her relative contribution is the same as the other partner's.
We're at an impasse as to which approach we should be going for, and while both have positive and negatives, we'd appreciate some external input.
Johan Gouws, head of Absa multi-management responds:
Decisions related to household finances are always very personal and one has to consider both the relationship and economic principles in making your decision.
However, if you purely have to decide about a fixed regular contribution towards your retirement savings versus a percentage of your salary, then the preferred way of saving is actually quite clear.
The most effective way to save would be to make regular contributions as a percentage of salary.
The first reason for following this approach is that your savings rate will keep up with your ability to save, as the money saved as a percentage of your salary will remain a constant.
The second reason is that your savings discipline will not be eroded over time, as will be the case with a fixed amount where your savings rate will drop over time as your salaries increase.
The third reason is that this will be an equaliser in terms of who contributes what so that if both contribute 10%, for example, you will both have made an equal commitment towards saving, given your economic realities.
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