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.
What is the main benefit of a joint account?
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.
That's the power of compounding.
Other advantages of a joint trading account
Here are some of the other potential benefits of opening a joint share trading account:
Better visibility of shared investment ideas and strategy.
Shared responsibility over your finances and investment goals.
Accountability between investors.
Transparency among investments.
Lower barrier to entry.
Lower fees.
How to open 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.
You can open a joint trading account by following these steps:
Find a broker or trading platform that offers joint account.
Create an account using the personal details of both parties.
Enter the tax file number (TFN) of each account holder.
We currently don't have a partnership for that product, but we have other similar offers to choose from (how we picked these
):
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.
What are the potential downsides?
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:
Differing risk tolerances
Different investment approaches
The ending of the relationship
External financial pressures
Need to liquidate the account
It is possible to separate out the assets in a joint account without incurring any tax events, but you'll normally need to pay a transfer fee when moving stocks from one account to another.
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 if both parties can 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.
How investments are made. Do both need to agree on when investments are bought or sold?
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.
What are the tax implications of joint accounts?
The Australian Taxation Office (ATO) will automatically assume that ownership of shares held in joint accounts are are 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.
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.
Tom Stelzer is a publisher and writer for Finder, covering investing and cryptocurrency.
He previously worked for Finder as a writer in Australia and the UK, covering things like personal finance, loans, investing, insurance as well as small business and business loans.
He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney. See full bio
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