Trying to save for a home with surging property prices, keeping up with high inflation or being part of the financial independence, retire early (FIRE) movement are just some of the financial goals retail investors are working towards.
Couples might be able to achieve these goals faster if they work together using 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.
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, access dividends and be exposed to fluctuations in price all the same as any other investor.
The only difference is that multiple investors own the shares instead of one.
These are most commonly set up between spouses, parents and children, but can even be set up between 2 people who have similar financial goals such as business partners.
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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.
Having 2 people put their funds together can help you start benefiting from compound interest even sooner.
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 ASX 200 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 each investing less each month.
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.
1. Better visibility of shared investment ideas and strategy.
2. Benefits of compounding faster: in a nutshell, reach savings goals quicker.
3. Shared responsibility over the family's finances.
4. Accountability between investors.
5. Transparency among investments.
6. Lower barrier to entry.
7. Shared goals.
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.
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 if your relationship breaks down. The entire portfolio would likely have to be sold.
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.
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.
Investors who hold shares jointly will be subjected to the same tax rules as individual shareholders.
The Australian Taxation Office (ATO) 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.
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.
Setting up a joint share trading account can be a great opportunity for 2 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.
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.
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