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By Jason Stipp and Christine Benz | 10-02-2014 04:00 PM

Simplifying Your Portfolio for Your Spouse

Morningstar's Christine Benz shares tips for simplifying a portfolio for a non-investing-savvy spouse.

Note: This video is part of Morningstar's October 2014 5 Keys to Retirement Investing special report.

Jason Stipp: I'm Jason Stipp for Morningstar. A big part of estate planning is thinking about your investment portfolio and how that portfolio may need to transition to your spouse. Joining me with some tips on that is Morningstar's Christine Benz, our director of personal finance. Christine, thanks for being here today.

Christine Benz: Jason, it's great to be here.

Stipp: One of the issues that we know among our readers is this issue of "Maybe I have a spouse who is not as engaged in investing as I am." That could have some implications for how you might want to formulate a portfolio that may eventually pass to that spouse.

Benz: This is such an important topic, and this is a profile that we've identified among so many of our users who are actively engaged, hands-on investors; oftentimes, when I talk to those investors, they say, "My spouse just isn't into this stuff." So, it's important, especially if you're the older partner in your relationship, to start thinking about how you can build a portfolio that your spouse could easily manage even if you were unable to do it for whatever reason.

Stipp: One of the big parts of that might be excising some holdings from your portfolio. What kinds of things might you want to take out in that case?

Benz: I think any narrowly focused fund type would go on my chopping block. So, these would be region-specific or sector-specific funds, funds that just take a small cut of the market. I might also look at individual stock holdings. As much as I like the idea of building a high-quality portfolio of individual stocks, if your spouse isn't up for ongoing oversight responsibilities, they probably will not want to have to manage individual stock constituents.

I'd also think about excising any sort of tactical strategies that you might be implementing in your portfolio. Sometimes, I talk to retired people who say, "Well, anytime the Dow Jones Transportation Average moves above this level, I do blah-blah-blah." That's the kind of strategy that is better left to someone who is comfortable with it. It's not the kind of thing that you want to try to teach to a spouse who is not particularly engaged in investing.

Stipp: There are also some core, key types of funds that can be harder to hold.

Benz: That's right. So, I would think of funds that aren't particularly representative of a broad swath of the market. Maybe they use narrowly focused strategies and maybe they are volatile. So, they might be diversified funds--not sector funds or anything like that--but here I'm thinking of, say, Fairholme fund (FAIRX). It's a very idiosyncratic strategy. Longleaf Partners (LLPFX), one that I hold. They're very good funds, I think, for investors with long time horizons, who have a lot of tolerance for short-term volatility. They might not be the kinds of things that a novice or a non-interested investor might have a great comfort level with.

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