Don't open a joint account until you consider these issues.
If you want to invest money, you'll need a brokerage account. When you're opening one, some brokerage companies give you the choice of maintaining either an individual account or a joint account. If joint accounts are an option, you will need to decide whether to open a shared account with your spouse.
Here are some of the key issues you should consider when deciding whether a joint account is right for you.
Is a joint account even an option?
If you're considering a joint account, you'll first need to make sure it's even possible to open one.
Not all brokerage firms allow this, with some offering individual accounts only. And with certain types of accounts, it's not possible to share them. For example, if you are hoping to open up a tax-advantaged IRA, you will not be able to open it jointly with your spouse. You will each need your own IRA.
If you are working toward a shared goal, it can make more sense to open a joint account rather than if you are each saving for something separate.
For example, if you are investing for a down payment for a vacation home you'll be buying in 10 years, then a brokerage account is potentially a better choice than a savings account since you have such a long investing timeline. And since you are saving together for a home you'll buy as a couple, a shared account may make sense.
Have you combined the rest of your financial lives?
If you and your partner maintain separate bank and savings accounts, then it makes more sense for you to also have separate investment accounts as well. That way, you can each contribute to your own account from your independent pools of money.
If all of the rest of your finances are combined, on the other hand, then combining your investment accounts is a logical move since you'd be investing in the account from your shared funds anyway.
Do you have the same investment style?
If you and your partner have different investing styles -- such as one of you wanting to take more risk or one of you preferring ETFs over individual stocks -- then a separate account for each of you might make sense. That way, you can each deposit according to your own objectives and comfort level rather than fighting over what assets to buy.
Of course, you don't necessarily need separate accounts to do that. You could have one account and invest in different things within it. But it can be easier for you each to track your individual performance if you have your own separate accounts instead of a joint one.
Will maintaining the right asset allocation be easier?
Finally, if you are married, the performance of each of your individual investment accounts is going to affect the financial security of both partners since this can determine how much money you end up with as a couple.
If you maintain separate accounts, it can be harder to determine if you have a diverse mix of different assets as a couple and if you are collectively exposed to the right level of risk. For example, if you invest a large sum in a particular company and your partner does the same, you could have too many eggs in that one basket and face outsized risk if that particular investment performs poorly.
You'll need to think about all of these issues when deciding what is right for you. There's no one-size-fits-all approach so think about your money management style as a couple, as well as your goals when deciding how to proceed with opening either individual or joint brokerage accounts.
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In the realm of investments and brokerage accounts, I've gained extensive knowledge through years of personal investing, financial advisory roles, and continuous study in the field of personal finance. I've navigated various investment instruments, including brokerage accounts, joint accounts, and tax-advantaged options like IRAs. Let's dive into the concepts touched upon in the article.
Brokerage Accounts: These serve as platforms for buying and selling various financial instruments, including stocks, bonds, mutual funds, and ETFs. Opening a brokerage account is essential for investing in the stock market.
Joint Accounts vs. Individual Accounts: Brokerage firms offer the choice between individual and joint accounts. Joint accounts allow multiple individuals to manage and contribute to a single investment account. Individual accounts, on the other hand, are owned and operated by one person only.
Considerations for Joint Accounts:
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Account Option Availability: Not all brokerage firms permit joint accounts. Some may only offer individual accounts, and certain types of accounts, like IRAs, cannot be held jointly.
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Shared Financial Goals: Joint accounts are beneficial when saving towards shared objectives, such as buying a home together or any common long-term financial goal.
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Financial Integration: If partners maintain separate finances, individual investment accounts might be more suitable to contribute from independent pools of money.
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Matching Investment Styles: Differing risk appetites or investment preferences might suggest the need for separate accounts to align with individual objectives comfortably.
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Asset Allocation and Risk: Maintaining diversified portfolios and managing risk becomes crucial in joint accounts, as the performance of each individual's investments affects the collective financial well-being of both partners.
Deciding between individual and joint brokerage accounts depends on the alignment of financial goals, integration of finances, investment styles, and the ease of managing asset allocation and risk together as a couple.
The article highlights the importance of understanding these nuances before opting for a joint account and emphasizes that there's no one-size-fits-all approach in financial management as a couple. Factors like financial integration, shared goals, investment styles, and risk management play pivotal roles in making an informed decision.
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