Record-low interest rates, surging property markets, and a growing financial independence, early retirement (FIRE) movement is leading to a surge in retail investors.
But investors might be unaware they can achieve their goals much faster through a joint share trading account.
But before you jump in and make a joint account with your significant other, here is what you need to know.
What is a joint share trading account?
A joint share trading account is simply a trading account that 2 or more individuals own.
In most ways it behaves the same as normal shared ownership.
Joint investors will still be able to purchase shares under a Holder Identification Number (HIN) , have the same voting rights (albeit technically half the couple disagrees), access dividends and be exposed to fluctuations in price all the same as any other investor.
The only difference is that 2 investors own the shares instead of 1.
These are most commonly set up between spouses, parents and children, but it can even be set up between 2 people who have similar financial goals such as business partners.
What are the main perks?
A joint account can be incredibly beneficial especially for investors who are starting out or do not have enough funds to warrant getting a family trust.
The main perk is the pooling of resources.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Compound interest
After all, the sooner you start investing, the more time you'll have in the market and through the magic of compound interest, the better off you'll be financially.
As Albert Einstein once said "compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."
Remember compound interest is growth on growth.
For example, we added some quick figures into a moneysmart calculator, of a single investor saving $100 per month. After reaching $10,000 (which will take some time), say they invest it over 30 years with an annualised return of 10% (note the ASX200 averages 9-11% per year).
Over the course of their lifetime this investor will have $424,423.
But if the investor partners up with someone in the same circumstances, and is able to start investing 10 years earlier due to shared savings of the initial $10,000 they can add half as much in each month (so $50) but invest over 40 years.
In this situation the couple walks away with $1,169,000 simply from starting 10 years earlier while enjoying a more comfortable lifestyle as they are investing less each per month.
Benefits go beyond compounding
So it becomes very obvious that pooling resources and starting earlier can have a profound impact on returns.
But the benefits go beyond just compounding.
It is very easy to cheat your personal financial goal. But adding a second person to the mix adds a level of accountability making it more likely for investors to stay on their target.
Not only does a joint account help with accountability, it also breaks down financial barriers, especially initial deposits when it comes to financial institutions as well as allowing for a more diverse range of ideas.
Once you have discussed with your partner how you'll manage the joint account, it might offer the following advantages:
- Better visibility of shared investment ideas and strategy.
- Benefits of compounding faster: in a nutshell, reach savings goals quicker.
- Shared responsibility over the family's finances.
- Accountability between investors.
- Transparency among investments.
- Lower barrier to entry.
- Shared goals.
Finder survey: How do Australians of different ages primarily trade forex?
| Through an ETF or managed fund | 1.49% | | | | 0.8% | 1.84% | 1.05% |
| Other | | 0.57% | | | | | |
| With a forex broker (non-CFD) | | 0.57% | 1.23% | 2.78% | 2.81% | 0.46% | 2.11% |
| With a money transfer service | | 0.57% | | 0.56% | 0.8% | 2.76% | 3.16% |
| Through a CFD platform | | | 0.62% | 0.56% | 3.61% | 4.61% | 2.11% |
| Full-service (advice) broker or portfolio manager | | | | | | 0.92% | 1.05% |
Source: Finder survey by Pure Profile of 1145 Australians, December 2023
But what about the downside?
Despite the obvious benefits of a joint account, it can come with some risks and drawbacks.
When it comes to compounding, unless the partnership allows for starting deposits to be met earlier, it won't have a profound impact on overall wealth, unless the other party is adding substantially more to your holdings.
Need to meet your risk profile
Aside from this, most investors have their own individual styles, risk profiles, ESG metrics and investments they believe can be market beating.
Add a second person to the mix and this strategy might be harder to achieve than it would individually, especially during turbulent markets. After all, it is rare that 2 people will behave in the same way should the market fall 30%.
It also becomes difficult to split assets, in the unfortunate case that the partnership dissolves from a personal perspective. The entire portfolio would likely have to be sold.
Risks include:
- Different risk tolerances
- Different share trading strategies
- Harder to split assets
Is a joint share trading account right for you?
Before deciding if a joint account is right for you, it is important to understand each other's financial goals and spending habits.
The appeal of a joint account might not work if one spouse is a spender while the other is a saver, for example.
But should both parties agree on a share trading plan, then it can be beneficial to both.
Before starting, both parties should agree on:
- How much will be invested each month.
- How often each party will add to the share trading account.
- What the overall goals for the investors are.
- When investments will be bought and sold. Do both need to agree on a trade?
- Understand the tax implications for both partners.
Features to look for in a joint share trading account
Most brokers will let you have whatever type of joint brokerage account you want. But in terms of what investors should look out for really depends on their own personal style.
Investors should be looking for the same features in a broker for a joint account as they would as an individual.
The main priority needs to be suitability for the investors' style.
For example, a couple who are looking to have set and forget blue chip stocks and exchange traded funds (ETFs) and only want to trade a few times a year won't really need all the bells and whistles. This means they can target a broker which is CHESS sponsored for peace of mind, but don't really need to worry as much about brokerage due to such a long timeframe.
Whereas 2 investors in a joint account who are looking to actively day trade might prefer to sign up with a low cost, but highly technical broker that will help them day trade.
Tax implications
When it comes to tax time, investors who hold shares jointly will be subjected to the same tax rules as individual shareholders.
The Australian Taxation Office highlights that if shares are jointly held, such as with a spouse, it is assumed the ownership of the shares is split 50/50.
This means the tax has to be paid in equal parts when it comes to dividend payments.
Although, shares can also have unequal ownership meaning investors will pay tax on the part they own. For example, if a husband and wife own $100 in a share, but the wife contributes $80 for the initial purchase, she can claim that she is the major owner and pay taxes accordingly.
To find out more, please see the ATO's website.
Bottom line
When it comes to setting up a joint share trading account it can be a great opportunity for two or more people to reach their collective financial objectives.
But at the same time it is not for everyone.
If investors are looking to set up a joint share trading account it is important they find a like minded partner who has a similar investing style.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
