Investing as a team of three investors can be rewarding but also challenging. The key to success is open communication, clear division of responsibilities, understanding each person’s risk appetite, and investing in assets that match the team’s collective goals. With proper planning and execution, a trio of investors can build a well-diversified portfolio, leverage each other’s expertise, and achieve better returns than investing alone. However, conflict of interest and power struggles can derail the team if not handled properly. The three investors must align their investment philosophies, agree on an optimal asset allocation, set ground rules for making decisions, and measure performance regularly. With trust and transparency, the team can thrive by combining their capital, skills and experiences.
Align on investment philosophy and risk tolerance
The three investors should have an open discussion on their core investment beliefs, preferred asset classes, time horizon, and risk tolerance levels. This understanding will guide decisions on what to invest in and how much. For instance, a risk-averse investor may want to limit exposure to small caps and emerging markets, while an aggressive investor prefers more allocation to such assets. As a team, they can strike a balance between assets with different risk-return profiles. However, large disconnects on risk appetite and beliefs need resolution to prevent future conflicts.
Divide responsibilities clearly
Based on individual strengths, interests and availability, the three investors should divide up research, analysis, execution and monitoring duties clearly. For example, one person focuses on researching stocks, another on bonds and alternatives, while the third consolidates overall portfolio holdings and performance. Periodic meetings must be scheduled for the team to exchange insights and make coordinated decisions. Proper documentation of transactions, holdings and costs is critical. Role flexibility over time can prevent single person dependencies and biases.
Agree on decision making policies
The team must decide on voting rights, veto powers, and other group decision making protocols. While consensus on all investment actions is ideal, simple majority rule on asset purchases or sales may be adopted for efficiency. Unanimous approval could be required only for big bets exceeding a threshold. Exit clauses, locking periods, and conflict resolution processes will help navigate differences. Whatever approach is chosen, ground rules must aim to draw on each person’s expertise while keeping everyone’s interest aligned.
Implement portfolio best practices
As a cohesive unit, the three investors should adhere to proven portfolio management techniques. This includes proper asset allocation across stocks, bonds, cash and alternatives to match the team’s collective risk tolerance and goals. Diversification at asset class, sector, geography and company levels is critical to minimize concentrated risks. Regular rebalancing must maintain target allocations. Costs and taxes need optimization at the overall portfolio level, not just individual investments. Above all, the investors must stay disciplined, patient and consistent despite market volatility.
Track performance transparently
A consolidated view of portfolio holdings, asset allocation, costs, risks, returns and periodic progress to goals is essential. This requires aggregating details across individual accounts into team level reports. Return attribution analysis will identify best and worst contributors. Dashboard sharing ensures transparency, while meetings provide a forum to discuss results and any needed realignment. Leveraging technology solutions and professional advice can facilitate performance tracking for the co-investors.
With aligned interests, clear responsibilities, collaborative decisions, disciplined portfolio management and transparent performance tracking, a team of three investors can achieve better results than going solo. Trust and communication are key to overcoming the challenges.