By Travis Smith on September 06, 2022

Opening a Joint Investment Account with a Friend: 3 Mistakes to Avoid

Opening a joint investment account with a friend: Is it a genius idea or a horrible mistake waiting to happen?

Have you and your friend been talking about getting into crypto investing together? Maybe you have been thinking about buying property with friends or investing in collectibles. If you and your friend want to pool resources, invest in high-value assets, and build wealth together, you may consider opening a joint investment account. But is that truly the best course of action for your joint investment dreams?

This post will cover the top three mistakes we’ve seen people make when opening a joint investment account with a friend—and how to avoid making them yourself. 


Why Open a Joint Investment Account with a Friend? 

Let’s start out by answering an important question: Can you open a joint investment account with a friend? You may have already guessed the answer—yes, you can. If not, this would be a very short post. You can open a joint investment account, also called a joint brokerage account, with anyone you trust. 

Related Read: The Beginner's Guide to Group Investing: How to Build Wealth with Friends

So, you can open a joint investment account with a friend… but should you? Let’s take a look at some of the benefits you can enjoy when you invest with a friend instead of going it alone:

  • Lower risk: Investing in a group spreads your risk among the group, making each member’s investment less risky.

  • More capital: When you pool funds with a group, you have more capital to invest. 

  • Extended Network: Forming an investment group gives you more knowledge and expertise, allowing you to access more and better deals.
  • Increased Diversification: With an investment group, you can spread your capital across multiple opportunities instead of going all-in on one. 

  • It’s fun: Investing as a group is a great way to learn new investment classes, share ideas, and build relationships as you build wealth. 

Related Read: Buying an Investment Property With a Friend: 5 Key Considerations

You may have heard that mixing money and friendships is a bad idea. However, with the right processes and preparations, investing with a friend can be an excellent opportunity to level up together and share the responsibilities and victories that come with your investing journey. 

New call-to-action

Mistake #1: Keeping Things Casual 

The number one mistake you can make when opening a joint investment account with a friend is keeping things too casual. You and your friend are close—close enough that you may be tempted to trust your relationship to protect your invested capital. 

If you leave your investment partnership to a simple handshake agreement, you risk challenges in your relationship stemming from blame or resentment if a deal goes south. However, your relationship isn’t the only area where you may see issues if you keep things too casual.

You may run into challenges related to taxes and other regulations down the line if you neglect to formalize your business partnership. 

This mistake has severe consequences, but thankfully it’s easy to avoid making. You can avoid this mistake by formalizing your business relationship with your friend. Start by filing an LLC. You’ll also want to avoid putting all your investable capital into one party’s account. Instead, use a business bank account to hold all funds and returns for formal distribution. 


Mistake #2: Failing to Set Expectations 

The second mistake you’ll want to avoid when opening a joint investment account with a friend is failing to set expectations. Failing to set expectations is a mistake because it is the surest way to cause conflict and create misunderstandings in your partnership.

Clear communication is vital when mixing money and personal relationships. To ensure that you and your friend can invest together without spoiling your friendship, you’ll need to take steps to align early and often.

You can avoid this mistake by… you guessed it: Setting expectations. Take time at the beginning of your partnership to align with your friend around goals, intentions, budget, timeline, and more. You can use an alignment tool like Tribevest to set your mission statement and organize all investment-related communications into a single platform separate from your personal conversations. 


Mistake #3: Neglecting Succession Planning  

The last common mistake you’ll want to avoid when opening a joint investment account with a friend is failing to account for succession planning. No one likes to think about their death, but failing to plan for the possibility will cause nothing but headaches for the surviving party. 

On a less morbid note, you may need succession planning even if no one passes—what happens if one partner wants to withdraw their contributions sometime down the line?

You can avoid making this mistake by creating an Operating Agreement. Your Operating Agreement will allow you to set processes and procedures for your partnership. You’ll also be able to lay out exit and succession plans to account for the scenarios discussed above and more. 


Forming a Tribe: Easier than Opening a Joint Investment Account with a Friend 

You’ll want to avoid these three mistakes when you open your joint investment account with a friend, but this shouldn’t be your only preparation for investing together. To invest successfully with a friend, follow the following steps:

  1. Create an Operating Agreement
  2. File an LLC to formalize your business partnership
  3. Open your joint business bank account
  4. Align and pool funds using Tribevest’s alignment tool
  5. Pull the trigger and invest!

To see how Tribevest can help your joint investing dreams come true (and avoid making them a nightmare), get started with our platform today!

New call-to-action


Published by Travis Smith September 6, 2022