Think­ing of an In­vest­ment Club, check out this

Business Day (Nigeria) - - LEGALPERSPECTIVESWITH -

If you are in­ter­ested in in­vest­ing, but don’t want to do it alone you can join an in­vest­ment club or start your own. An in­vest­ment club is sim­ply a group of in­di­vid­u­als that pool their funds to make joint in­vest­ments. Not only can pool­ing money cre­ate bet­ter in­vest­ing op­por­tu­ni­ties, but mem­bers also save on trans­ac­tion costs by shar­ing the costs and fees as­so­ci­ated with buy­ing and sell­ing stocks as a group. If you are think­ing of set­ting up or join­ing an in­vest­ment club, here are some is­sues to con­sider.

How many mem­bers? It is com­mon to have be­tween 5 and 20 mem­bers, of­ten groups of friends, neigh­bors, col­leagues, church mem­bers, or rel­a­tives, who have di­verse in­ter­ests and ex­pe­ri­ences. If the group is too small, you may not ac­cu­mu­late enough money to in­vest ef­fec­tively. Yet, if there are too many peo­ple, it can be­come un­wieldy and dif­fi­cult to sched­ule or to reach a con­sen­sus re­gard­ing in­vest­ment op­tions. A num­ber of be­tween 6 – 15 peo­ple keeps group dis­cus­sions man­age­able.

Put struc­tures in place og­nize that an in­vest­ment club isn’t just a group of friends who come to­gether to in­vest. Money mat­ters can be sen­si­tive and if not han­dled right can dam­age friend­ships. Club mat­ters should thus be for­malised and a solid struc­ture should be put in place to guide a club’s ac­tiv­ity and en­sure that its agenda is car­ried out ef­fi­ciently and with­out fric­tion. A lim­ited li­a­bil­ity com­pany or a le­gal part­ner­ship tends to be the most com­mon struc­ture, a for­mal or­ga­ni­za­tion with mem­bers who have rights and du­ties.

Once it is le­gally es­tab­lished, a for­mal agree­ment should be put in place broadly stat­ing re­spon­si­bil­i­ties of group mem­bers. It should also in­clude in­for­ma­tion and pro­vide a record of im­por­tant is­sues such as the club’s in­vest­ment phi­los­o­phy, of when, where, and how of­ten the group will meet, ini­tial mem­ber­ship con­tri­bu­tions and on­go­ing dues. It will also com­ment on mem­ber­ship in terms of join­ing or ex­it­ing as well as the liq­ui­da­tion of in­vest­ments, dis­tri­bu­tions and di­vest­ing from the club. This doc­u­men­ta­tion is ab­so­lutely es­sen­tial to pro­tect mem­bers should things not work out. As with any other or­ga­ni­za­tion, if a group is dis­or­ga­nized, if mem­bers do not agree and if there is no struc­ture, it is likely that a club will fail and mem­bers will lose money.

A com­mon in­vest­ment phi­los­o­phy

An in­vest­ment club must de­ter­mine its in­vest­ing style, a com­mon in­vest­ment phi­los­o­phy and an ac­cep­tance and ad­her­ence to its pro­cesses by mem­bers. In­di­vid­ual risk pro­files and fi­nan­cial sit­u­a­tions vary; mem­bers who are more ag­gres­sive short­term in­vestors or spec­u­la­tors who wish to in­vest in high risk stocks may not part­ner well with the more con­ser­va­tive mem­bers who would rather wait to ben­e­fit from long-term cap­i­tal ap­pre­ci­a­tion and are more com­fort­able with blue chip stocks. Mem­bers should have sim­i­lar or at least com­pat­i­ble in­vest­ment styles and ob­jec­tives and should be pre­pared to sup­port its ap­proach.

Hold reg­u­lar meet­ings

An in­vest­ment club should ide­ally hold monthly meet­ings with clear guide­lines. A pre­lim­i­nary meet­ing will help ev­ery­one to de­ter­mine if they can in­deed work to­gether and will help to ar­tic­u­late the com­mit­ment ex­pected from par­tic­i­pants. At the meet­ings, in­vest­ment de­ci­sions can be dis­cussed as well as the re­view club fi­nan­cials, in­di­vid­ual in­vest­ment progress and any cash bal­ance avail­able for in­vest­ment. Meet­ings should be run ef­fi­ciently so that they don’t be­come tire­some mak­ing mem­bers strug­gle

to at­tend.

Fi­nan­cial ment

After a mem­ber con­trib­utes an ini­tial lump sum for in­vest­ment pur­poses, the typ­i­cal in­vest­ment club re­quires a monthly con­tri­bu­tion from mem­bers. Some clubs are flex­i­ble and do not im­pose a set amount that mem­bers must con­trib­ute, so that no one is hard pressed to come up with their sub­scrip­tion. Small in­vest­ments may frus­trate in­vestors who want to com­mit larger amounts of cash whilst a large monthly con­tri­bu­tion may elim­i­nate mem­bers over the long run.

Ide­ally, you should also be con­tribut­ing to your Re­tire­ment Sav­ings Ac- count (“RSA”) in ad­di­tion and build­ing other per­sonal sav­ings and in­vest­ments.

Who does what?

Of­fi­cers should be elected early on as it is im­por­tant to be clear as to who does what. Typ­i­cally, a Chair­per­son pre­sides over meet­ings and a deputy in their ab­sence. The Club Sec­re­tary keeps a record of min­utes, and sends out re­minders of up­com­ing meet­ings whilst the Trea­surer co­or­di­nates fi­nan­cial mat­ters re­lat­ing to sub­scrip­tions, and keeps records of the club’s hold­ings as well as each in­di­vid­ual mem­ber’s hold­ing. The abil­ity of this mem­ber is crit­i­cal to the suc­cess of the club so this role must be se­lected care­fully.

To en­hance the ex­pe­ri­ence of in­di­vid­ual mem­bers and make them feel more in­volved, some in­vest­ment clubs limit the amount of time each mem­ber can hold a par­tic­u­lar role. This will also di­min­ish the chance of cer­tain mem­bers be­com­ing too con­trol­ling.

A good learn­ing op­por­tu­nity

One of the great­est ben­e­fits of an in­vest­ment club is the learn­ing op­por­tu­nity it pro­vides. An in­vest­ment club en­cour­ages the shar­ing of knowl­edge and ex­pe­ri­ence among mem­bers. Money mat­ters can be com­pli­cated and learn-

It is im­por­tant to rec-

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