A joint share trading account is just a standard trading account that is owned and managed by multiple people.
Investors using a joint account still get the same benefits and features of any other investor, including the ability to purchase shares under a Holder Identification Number (HIN), vote at shareholder meetings and receive dividends.
The only difference is that the shares are owned by two (or more) investors instead of one.
Joint accounts are most commonly set up between partners and spouses, or between parents and their children, but can also be between 2 people who have similar financial goals, such as business partners.
The main advantage of a joint trading account is that it means you may be able to invest more money earlier than you would by yourself.
The reason this is important is because of the power of compounding returns.
As Albert Einstein supposedly once said, "compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."
In simple terms, the idea behind compound interest is that the longer you have your money invested, the higher your potential return. And the more money you've invested over that time, the more you'll make.
Here's an example:
Say we have a solo investor who invests $5,000 into the stock market, with the aim of eventually investing $10,000 overall.
He can manage to save an additional $500 a year to invest, which means it takes him 10 years to reach his overall goal of $10,000 invested.
He leaves this money to compound over 30 years, earning an average annual return of 10% per year.
After 30 years, his investment account is now worth $140,854 off a total investment of $10,000. Not bad.
Now say we have a couple who have $10,000 between them to invest. They decide to open a joint account and invest the $10,000, which they then let sit for 30 years.
After 30 years, they have $174,494 off the same total investment of $10,000.
They've made an extra $33,640 compared to our solo investor, despite both having invested the same amount of money, simply because their money was invested sooner. (This example assumes a 10% annual return and ignores fees and tax, so it's illustrative only.)
That's the power of compounding.
Here are some of the other potential benefits of opening a joint share trading account:
Most online share trading platforms and brokers will let you open a joint account in the same way you would a standard account.
We've scored over 30 share trading platforms assessing them for their core features, fees, customer experience and accessibility. Our experts give each platform a score out of 10.
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.
The potential risk of joint accounts is how they can be dissolved or separated out in instances where a change in circumstance or strategy means the two parties no longer agree on how the investment account should be managed.
This could be because of the following reasons:
Separating out the assets in a joint account can have tax consequences. If one holder gives up their share of the investments, for example by transferring shares into the other person's name, that's generally a capital gains tax (CGT) event for the person giving them up. The relationship breakdown rollover can defer CGT, but only when the transfer is made under a court order or formal agreement. You'll also normally need to pay a transfer fee when moving stocks from one account to another, so it's worth getting tax advice first.
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 if both parties can agree on a share trading plan, then it can be beneficial to both.
Before starting, both parties should agree on:
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 joint account features in a broker 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.
The Australian Taxation Office (ATO) will automatically assume that ownership of shares held in joint accounts is divided equally. This means if you have a joint investment account with your partner, you'd both be considered to own 50% of the portfolio. This means that you'd each need to declare your 50% share of any capital gains, dividends or franking credits on your tax return.2
You can also have the shares owned in unequal portions, provided you can demonstrate this is the case. 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.
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