A lot of people look into investing in stocks. Success stories and the potential for profits can draw a lot of people into investing in the stock market. However, a lot of people can feel limited by the capital they can put towards an investment, or they want to invest with other people.
In this guide, we’ll go over what joint investments there are that allow two or more people to invest together, as well as discuss the risks and possible benefits from investing – whether you are investing with someone else, or whether you are investing alone.
Investing in the stock market is one of the ways that people try to secure their financial future. While investing in stocks or shares was historically something that only wealthy people could do through brokers, there is not a lot more scope for people to invest in the stock market through a brokerage account on a website or app.
Investment earnings can be a good bolster to people’s finances, though of course prices can go down, and people can lose the money that they invest in stock or shares. The main appeal with stocks or shares investments is that the returns can be significantly higher than the returns or interest rates when people put their money into a savings account.
What are stock market investments?
Investing in stocks generally means investing in companies, though of course there are some different types of investments. Single stocks are where you buy a small part of a company – this could be a percent of a percent – and the price of your investment goes up or down with the value of the company. If the company does well and is profitable or has good repute, good projects in progress, or good public interest, then the value of the company will increase, with the value of the stock increasing in turn. Of course, the opposite also holds true – if the value of the company drops, then the price of your investment will drop, and you could lose money.
There are also investments that let you purchase shares in joint funds such as ETFs – Exchange Traded Funds, or investing in funds that track the overall health of the stock markets and economy. Of course, before making any investment decisions, you should do your own research and make sure that you know what you are investing in. Some types of investment can even lose more money than you put in, meaning that you should treat investments with caution.
Why do people do joint investments?
There are some advantages to doing joint investment clubs or joint investments compared to being individual investors. Joining together can give you more brokerage assets to use for your investments, which can get you help from larger brokers and investment advisers, as well as some preferential rates. Some investments may even have a minimum investment amount, meaning that you might have to pool funds together in order to pursue the investments that you want.
You can also have joint accounts where all the members decide how to make investments, meaning you can benefit from the knowledge of everyone within the group. There is also a level of mutual accountability with this kind of plan, though a lot of people involved in group investments prefer to get a financial advisor to help manage the decisions to make sure that there cannot be disagreements on how the fund should be invested.
What are investment clubs?
An investment club is where a group of people join their funds together in order to make investments. Investment clubs typically have more than two people, but this is still a way for multiple different people to invest together in stocks.
Typically, the group of people will decide on what investments to make in a few different ways. This can include methods such as:
- Hiring a professional advisor: Getting professional help can be an easy way for people to handle their investment club’s funds. This takes the responsibility off the people in the club, who do not need to learn about stocks and investments – provided they trust their advisor. This is like a mutual fund or hedge fund.
- Electing a member to make the decisions: This typically only happens if all the members of the investment club trust one person to make financial decisions that are in their best interests – usually this is only the case if one member is very clued up on matters relating to stocks bonds and shares.
- Voting to decide what to do: For groups who do not want to hire a professional financial advisor, they could have a system of voting. This is where every member of the investing club has a vote, and the money is invested in whatever the majority votes for. Of course, this works best if everyone in the club is knowledgeable about stocks, investments, and the market – this means that it requires the most commitment from everyone in the group, and it might be less ideal for people who want a hands off type of investment.
What legal protection does an investment club have?
Investment clubs can either be set up as a limited liability company or a legal partnership. This means that there are checks in place. Of course, this does not prevent the group from losing money if their investment portfolio drops in value. It does however mean that no-one has full control over the funds and the money cannot be snatched up by a single member – which is a risk if you pool your funds with other people. An investment club would also likely have an operating agreement and could have someone working as a managing director in order to make sure that the investment process goes smoothly, as well as to try to get as much money as possible for the investors.
Should I join an investment club?
Whether or not you want to join an investment club depends on what you are hoping to get out of it. You might find that being able to share ideas for investment options with other club members is very beneficial. On the other hand, you might find that not having full ownership of the fund is difficult, as this means that you cannot guarantee that your money will be invested in the way you would want it to be invested. You should always check the terms of an investment club before you join it, as you might only be able to withdraw at certain points. If you are keen on the idea of an investment club or an investment company but want to have more control over your own money, you could look at starting your own investment club, which will let you set the groundwork to suit your preferences and select potential members according to mutually shared outlooks and financial plans.
Are investment clubs guaranteed to succeed?
No, investment clubs are not guaranteed to succeed. No investment is a guarantee of getting money. Being in a club often means that your investment assets will be handled by a professional or handled by multiple experienced individuals, but this still cannot assure success. Investment portfolios can always go down in value. It is hard to predict how the market will move, or how the values of individual companies will decrease, so there is always the risk of losing money. You need to make sure that this risk is accounted for in your personal finance planning before you start to make an investment – either by yourself or with club members in a group.
What are mutual funds?
Mutual funds are another way that multiple people can invest together. These are ways that many different investors can invest in a wide, varied portfolio. A mutual fund is almost always managed by a professional financial advisor. This can include a range of stocks, bonds, real estate investments, and more. In a fund like this, you will often not have contact with the other people who have invested in the fund.
What about joint accounts for investing?
One of the simplest ways to invest in stocks together is using simple joint brokerage accounts. This means you would open the joint together, and both of you would have full control over the investment money.
A joint account is best for when you want to invest with one spouse or one friend – it can be more confusing with multiple investors. This is because everyone in the joint account would have control over the joint investment portfolio – meaning everyone could buy, sell, or cash out money. This means that there is more chance for it to go wrong and for one person to negatively impact your investment portfolio – of course, the way around this is with a lot of research – though even if you think everyone in the game has your best interests at heart, you should still tread carefully and make sure that your investments are safe.
You should also agree to the level of risk you are willing to undertake before you start investing with a joint account – bear in mind that other people might want to have more of a ‘get rich quick’ approach compared to you, which would put your hard earned savings at higher risk. You should also make sure that there is no legal risk to you from your investments in this account – bearing in mind that some investments can lose more than you invest, it’s important to make sure you are protected from the risk of debt.
Unofficial joint investments
Of course, a lot of the methods listed above are ways of formalizing your investments with other people. You could also look at informal or unofficial joint investment methods. For example, some people will invest with their mother, father, siblings, or other family members in a more casual way – pooling financial assets and investing in whatever they’ve agreed to invest in. This is particularly common when people don’t want to have to open their own brokerage account or get financial advice, but they still want to invest. This is rarely seen outside family members or close friends.
Risks of unofficial investment method
If you invest informally with other people, you run a risk due to the lack of legal obligation or legal protection involved. If you put your money into someone else’s investment account or brokerage account, there is absolutely no guarantee that you will get your money back, even if there is a profit. The other person could easily take your money and claim that it was all lost on the market, and you would have no way of knowing. There is no real way to avoid this with unofficial investment methods, so you should be very cautious before going down this path. A joint brokerage account at least has some legal status and can be more formalized.
What happens if someone I’m investing with passes away?
In the event of the death of one account holder, most joint brokerage accounts will react in the same way that other bank accounts and financial services react. This means that usually, if you have a joint brokerage account with someone who dies, the account should come under your full control. This means that you will not be at a huge additional risk if you are investing with someone who is older or who is in poor health.
Of course, this only applies to joint brokerage accounts. If you are unofficially investing with someone and your money is in their own accounts – accounts that you have no access to and no claim over – you could find that all the money goes to whoever is listed in the deceased person’s will. This is why it is important to make sure that you have a joint brokerage account or similar with proper legal protection.
What are the risks of joint investments?
It’s always worth making sure that you know what you are getting into when you start investing with other people, whether with joint brokerage accounts or with investment clubs. This is because there are a lot of risks involved, especially the risk that you and your fellow investors could disagree on how to invest your money – if you all have other investments in mind, it could cause friction, which is not ideal when looking at shared ownership of an investment account. This can be particularly bad if money is lost. A lot of friendships or family relationships have been strained by finances, and you should be sure to discuss the possible outcomes thoroughly with the family member or members you want to invest with to make sure everyone is prepared.
What are the benefits of joint investments?
Doing a joint investment with a friend or member of your family can be a good way to increase the amount you can invest with. This can help get you access to other investments and other financial goals without having to take out personal loans for investment purposes – as you might find a financial institution that will only allow people with a certain amount of assets to invest.
You can also make use of the knowledge of all the people who are involved. This could be very helpful for beginner investors. A joint investment plan might mean that you can learn from the expertise of more experienced investors or people who have experience as a stock broker. Of course, you should make sure that you fully trust someone before getting their advice or letting them guide your investment choices.
A lot of people also find investing with others to be quite fun – personal finance can be a stressful and difficult subject, so having people that you invest with can make it a lot more fun. Some people will have multiple different investment types for this reason – people often use more stable and safe investments for the money that they want to save for their future, while setting aside some money to do riskier or more fun investments with other people.
How do I invest in the stock market by myself?
Investing in stocks by yourself is much easier than with other people. Many people have gotten started investing just with a simple online or app-based brokerage account, where you can buy and sell stocks quickly and easily. Of course, you will have to do all your own research for investments on your own account, unless you seek professional advise. Getting your individual account for trading only takes a few minutes.
Joint accounts for investment purposes – roundup
Investing can be a great way to bolster your finances and set yourself up for a good financial future, so it’s no wonder that a lot of people turn to joint investing. You can set this up in a number of ways, including joint accounts, mutual funds, or investing clubs – all of which have their own organizational structure and regulations. Making sure that your joint investing has regulation is a great way to avoid the issues that could crop up from having finances and your personal life joined together.
Before you start to invest in anything – whether that’s with other people or by yourself – you need to make sure that you are fully comfortable with all the ins and outs of stocks, shares, and other ways of investing your money. This is vital, since it is possible to lose a lot of money through these methods. If you are in any doubt at all, you should contact a professional financial advisor who can help go through the risks – you could even look into getting advice for specific places to put your money to work. You should never invest more money than you can afford to lose – and remember, if you are hoping to double your money overnight, you might need to look very carefully to avoid scams or traps.