Thinking of an Investment Club, check out this
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
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-