Trading Together For Better or Worse—“Til Death Do Us Part

By Dr. Charles Schaap

When we started mentoring traders, the plan was to spend time talking about chart patterns, Elliott waves and a variety of other technical indicators. But after working with several married couples who were having trading problems, we learned that they truly needed as much help with their relationships as they did with their trading strategies.

            More and more couples are trying to take control of their finances by trading in the stock market (or futures or options). Even as the markets disappointed them when the tech bubble burst in 2000, ever-optimistic baby boomers are looking to grow the money they have set aside for retirement. Other couples are pursuing trading as a new business. Whatever the reason, most of them are ill prepared for the emotional strain that trading can have on relationships. If they don’t already know that problems can creep up before they begin their trading journey, they soon will learn it in spades.

            Our intention is to provide useful insights for trading couples, through the anonymous words of our students and the discussion that follows. By understanding the potential pitfalls and knowing how to structure a plan to trade together in some sort of symbiotic way, couples can take steps to avoid conflicts that might injure their relationship – perhaps even permanently. You also will note that despite being offered advice that will help them turn a corner, some people clearly will not take it. 

Married to a Dream

“To date, 50 percent of our savings was lost in the first year of trading, and half of what was left is now gone. I have to make it all back before my wife finds out what has happened.”

            We all have seen the claims for potential trading profits on the television, usually at odd hours on more obscure channels.  They usually go something like this – You can make ten or twenty thousand dollars a week, and you only have to work an hour a day. These hucksters claim that they will teach you how to trade a simple system and become wealthier than you ever thought possible. In reality, they are not selling trading knowledge; they are selling the dream of financial freedom. In reality, learning to trade is hard work.

            Because married couples have a joint interest in their personal wealth, at first blush it makes sense that they go into business together to grow their wealth.  That may be so. However, couples first should decide if they really want their trading partner to be their spouse. Many of us wouldn’t think of going into business with a family member, so why should trading be any different for those people?

If this endeavor is not approached correctly, it could result in financial failure. Even worse, after arguing over a few big losses, the couple may find that there has been more damage done to their relationship than to their trading account.

Getting Rich Slow 

“We paid $6,000 for a trading course and another $15,000 for software and computers. We’ve been trading now for two years, and we still don’t have a winning trade.”

            Online discount brokers have made the stock market accessible to nearly anyone with as little as a few hundred dollars. To the uninitiated, trading sounds like the perfect financial pursuit. A trader doesn’t need employees, customers or an inventory of merchandise. Traders become their own bosses, set their own time schedules and work whenever they want. All they need is a computer and an Internet connection (or so they think).

Some couples become trading groupies, taking one seminar after another, searching for the secret to wealth. They often pay for expensive trading systems, software, computers and educational materials. However, a common pitfall is that new traders can begin with unrealistic expectations about how much money they can make and give little thought to how much money they can lose. In our opinion, it could take the average trader from three to five years to become consistently profitable in the stock market – and consistently profitable does not necessarily mean wealthy. It means being in the black versus being in the red overall.

Over and over again, those in the know stress that the key to success is the preservation of trading capital. Trading capital is not retirement savings. Trading capital is a small portion of money that the couple can afford to risk and maybe lose.

Unfortunately, couples wanting to get rich quick will jump right in to trading, using their savings and trading thousands of shares at a time. When they realize how hard it is to make money in the stock market, denial sets in. Eventually, they ask for help. But by then, most of their savings is gone.

Trading Can Bring Out the Best and the Worst

“The losses have been devastating. I can make back the money; but I don’t know if we can make back what’s been lost between us.”

            Indeed most of the information about trading psychology is written from the standpoint of how emotions affect trading. But much less has been written about the flip side – how trading affects our emotions. Traders often speak of being beat up and intimidated by the market. Staring at a computer all day (if that’s the way you handle monitoring the market) is stressful, especially when a person is on edge trying to not miss the next breakout. So is the experience of scanning thousands of stocks trying to find a few good prospects (and hopefully that’s done during before or after-market research time). And those who have experienced working hard all week, all month, or all year and still ending up without a loss know the feeling of frustration that results.

            We act out our personalities in trading, and many experienced traders have said that the markets force them to face things about themselves. The quest for trading profits can dominate the psyche and challenge the best and worst parts of each of us at the same time.

            In addition to the challenge of trading itself, couples who trade together present new issues to tackle. After all, how we interact as a couple is how we’ll interact as a trading couple. Besides knowing how to click a mouse button, couples also know how to push their spouses’ buttons. Relationships that already have emotional problems will find their problems becoming magnified under the pressure of trading together. Arguing over money – especially the lack of money – can be toxic to relationships.

What Is the Goal?

“Absence makes the heart grow fonder; absence of money does not.”

            Many couples with trading difficulties are trading for the wrong reasons. Trading is not a solution to life’s problems. Trading is something we pursue to enhance our lives and wealth, not to compensate for some deficiency in our lives. Couples with financial difficulties may be looking to trading as a quick fix for those problems, but trading with urgency or desperation leads to poor judgment and decision making and ultimately a potential failure. The harder we try and fail, the harder trying becomes. 

            And then there are those couples who see trading as an alternative to finding a new job. Maybe the current job isn’t going so well, and (the light bulb goes on!) trading is the way out. Nice idea, but faulty reasoning – learning to trade is hard enough without the need to make money right away. It is a process.

            Bill lost his job when his company downsized, and instead of looking for another position, he became more determined than ever to pursue day trading as a full-time business, with his wife, Sharon, at his side.

            After six months, Bill had lost most of their money, and Sharon and he were fighting constantly and near divorce.  Sharon had been so afraid of injuring Bill’s ego that she had let things deteriorate too long until she was desperate for help. We told Bill all of the things (hard truths) he needed to hear – those things that his wife could not tell him.      Unfortunately, we were unable to convince him to pursue a job and to work on that before he resumed trading again. He wanted to continue in his quest for an income via trading, determined that wealth was right around the corner.  We suggested, though, that if there was any money left, Bill and Sharon needed to have separate trading accounts, and we coached them on proper money management.  In the end, Sharon went back to work part-time while Bill continued to trade more successfully.  

Make Decisions Together

“My wife would rather watch paint dry than listen to me talk about trading.”

            When couples marry, there are certain agreements made, spoken and unspoken. Disposition of money is one of those that should also be made together (but often isn’t). Thus, if one spouse wants to trade and the other is against it, trading should not proceed until an agreement is reached.

            When one spouse trades in the savings account without mutual consent, the other spouse will naturally object, and with good reason. Furthermore, if one spouse hides trading losses from the other, there has been a breach of the covenant of their marriage.

            Ian hid trading from his wife, Darlene, by trading from work.  She was initially unaware that he had nearly gone through their savings when he came to us, terrified, and wanted to know how he could “win back” the money before Darlene learned of his transgressions.

            Ian was fairly new to trading, and we told him to stop trading, start studying at length, and to paper trade until he had some success.  We also told him he was not likely to make back previous losses any time soon, and he needed to come clean about his trading with his wife.

            Ian failed to take our advice because he wanted unreasonable results and wasn’t willing to bite the bullet and make decisions along with his wife.

When Harry Bet Sally

“My wife took over our finances, and she’s doing better than our old broker did.”

Harry and Sally are a young couple that had a financial conflict. Sally wanted to start trading, but Harry was skeptical. He didn’t know if Sally had the experience that their broker had and was worried she would lose all of their money. But Sally felt she would be devoting more quality time to their investments and could certainly hold a candle to the broker, who had a number of clients.

After counseling Harry about trading and the use of stop-loss orders to control losses, he felt more confident. Indeed he had been focusing more on potential profits and risks than on money management.

As a result, Harry made a bet with Sally. If she could make a positive return in the first year, he would take over some of the household matters. But if she lost more than 10 percent of their savings, she would stop trading for a while, and they would reevaluate the plan for trading going forward. Additionally, they agreed to put their “trading pact” with all of the conditions into writing.

After a year, Sally beat the performance of the old broker. Harry took on more of the household responsibilities, and now is interested in learning to trade himself.

Taking Your Vows

“ I feel rich to be able to have this life with my wife. The money we make is important, but not as important as the life we have built together.”

            I must admit that much of what we have learned about trading couples came from firsthand knowledge, because as a couple we trade together every day. For couples dreaming of financial security and freedom through trading, it can be the best job in the world. But trading, like marriage, takes work and commitment. Don’t let money damage your relationship, and don’t let your relationship damage your money.  The number one rule for traders is to preserve capital; the number one rule for trading couples is to preserve the marriage.

Avoid Unnecessary Conflict

“One of us is the better trader, and

one of us thinks he’s the better trader.”

There must be at least 50 ways to peeve your lover when it comes to risking money in the stock market. But the following ten rules will help you avoid unnecessary conflict:

• Both partners must agree to a trading plan before risking capital; 
• If only one spouse trades, leave that person alone except to discuss outcomes;
• Be clear about whether the goal is to trade to increase wealth, or to trade as a business;
• Be realistic about the time commitment needed to trade successfully, as well as the profit expectations;
• Do not trade more than 10-15 percent of savings or retirement;
• Have a drop-dead loss amount that stops all trading;
• If both spouses trade, use separate accounts;
• Be honest about trading results, especially losses;
• Try to beat the market (but no one really beats the market), not your spouse; and
• Trading is the ultimate personal challenge, so be supportive.

Fear, Greed and Love

“My husband and I love trading together.

He likes the short side; I prefer to play long.

I guess opposites do attract.”

            Love can be speculative, but marriage is a lifelong investment. The quality of a relationship will only be as good as the commitment between the two parties. See your differences as complementary strengths of the relationship, not a threat to individual egos.

            Before launching into a new venture together, successful couples take the time to build a plan, communicate about realistic goals and agree to support each other. Done properly, trading can be an opportunity to extend your relationship into an exciting and potentially rewarding endeavor.

Build a Plan Together

Great relationships are built on a foundation of good communication; great investing relationships are no different. Developing a mutually acceptable trading plan is essential to trading success. The following are the four steps essential to establishing a workable plan.

• Alliance. Both spouses must believe that they are capable of working together. Without the ability to form a working alliance, there will be distrust and disillusionment, and ego battles will prevent them from working constructively toward enhancing their wealth. Couples must make an honest assessment of how they function as a team.
• Goals.  The couple must agree on mutual trading goals. The goals must be identifiable, quantifiable and achievable. Try to keep the goals simple, but write them down with specific dollar amounts and time limits. The goals periodically can be reviewed and progress monitored on an objective basis rather than by opinion.
• Contract.  The contract should spell out the activities that the partners agree to do. Again, keep it simple, but write it down. Avoid the trap of “implied consent.” Clearly spell out the duties, obligations and roles of one another. If only one of the spouses trades, a more formal contract will allay fears of the non-trading spouse. There also should be a breach-of-contract clause, where trading must stop until the breach has been dealt with in a manner satisfactory to both partners. Be clear about what will be traded (stocks, options, futures), and how much capital will be allocated.
• Participation.  When both partners are actively engaged in the investing process, there is less fear, confusion and uncertainty. Even if only one partner helps set the rules, both should feel they are personally invested in the outcome. This is much different from an adversarial situation in which one spouse trades and the other is pessimistic. Each spouse should be personally invested in a positive result. Include a reward system for good results, such as a vacation for both partners.

Dr. Charles B. Schaap Email Schap550@yahoo.com ©All Rights Reserved2005-2008

Dr. Charles B Schaap

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