Join the club and share the responsibility

INVESTMENT clubs are similar to stokvels in that members meet regularly and pool their money. The aim is to use the economies of scale to get the best returns possible in the market.

It also inspires confidence to be in a group when heading down the dark and lonely streets of the JSE for the first time.

Shaun van den Berg, head of client education at PSG, said one of the most important things about being in a club was to learn.

Ideally, members should come to the meeting having researched a company or an investment and propose it to the group. The decision whether to invest, how much and for how long is then up for debate. Experts are often brought in to do presentations on investment opportunities and schemes.

Van den Berg said it was critical that the investment responsibility was shared among the members. He said what often happened was that proposals and choices were left to one person and the others simply contributed money. This meant one member shouldered all the responsibility for the investment and took the blame if everyone lost money.

Critical to the success or failure of the club is how much the members enjoy it. If animosity arises or there is a breakdown of trust, it will not work. The choice of members needs to be made carefully. Among other things, members need to have a similar risk appetite and a similar amount of money to contribute.

There are also several legal implications. Rules need to be made and tax needs to be paid. When the club is formed, a constitution that sets out responsibilities, agreements on investment types and how the money will be disbursed should be drawn up and signed by all members. Decisions must be taken on how exiting members are paid out and whether dividends will be paid out or reinvested.

Most investment houses will facilitate clubs and help with drawing up constitutions. — Tina Weavind