An investment club is a group of several investors who collectively pool their money and knowledge to make large investments, learn about investing, and monitor companies to identify investment opportunities.
The main goal is to educate group members about investing and to encourage them to apply the investment principles to their personal finances.
Who should participate in an Investment Club?
People from all walks of life can start or join an investment club because it doesn’t take any special expertise to be a member. It is not necessary to have any investment knowledge, you don’t need a large sum of money, and there are no age requirements. All you need is just the willingness to learn.
Why start/join an investment club?
Starting or joining an investment club could be one of the best decisions you ever make. By participating in an investment club, you open the door up to an exciting way to learn about stocks, bonds, mutual funds and other investment options. It’s tough to buy stocks on your own if you have limited time and money.
In an investment club, you can exchange stock data, pool small sums of money to buy large amounts of shares, and best of all; you are able to spread the risk of investing among the group. Furthermore, investment clubs have been shown to be an effective way to improve personal investment decisions, as long as the members follow a well-thought out strategy and do their homework.
To sum it up, joining an investment club has the following benefits:
- More fun than investing on your own
- Investment risk is spread among club members
- Shared research, information, and monitoring
- Broader perspective on investment decisions
- Combined money increases opportunities and returns
How do I start an investment club?
I wouldn’t say starting an investment club is easy, but it is relatively straight forward. The first thing you need to do is to start talking with friends and see who’s interested.
It’s best to gather a variety of people who will bring to the club a variety of interests, experiences, and perspectives. Once you find a few interested friends, let them invite a few of their own friends. The ideal size for an investment club is roughly 10 to 15 members, give or take a few.
Anything from 6 to about 20 is probably workable. Too few and you may have trouble accumulating funds to invest. Too many and you’ll have trouble having quality discussions and finding a place to meet.
Don’t worry if the group you have gathered is only composed of novice investors. Sometimes, if you mix in sophisticated investors with novice investors, the experienced investors will get bored or frustrated, and the novice investors will be intimidated. Often, a group of novices can learn everything the need by working together.
Next, you will want to distribute information about investment clubs to anyone who has expressed interest. Perhaps print out the material you’ve found here. You want the people who are interested to learn what investment clubs are all about so they can decide whether or not this is something for them.
Now you have to schedule your first meeting with all interested parties. At this first meeting, the first thing you want to do is make sure that everyone has compatible investing goals.
For instance, you want to find out who wants to double their money in two years and then get out, because that’s not only unrealistic, but it will hurt the long term prosperity of the group. Exclude anyone like this.
Other topics to cover at your first meeting is a name for the club, amount of the membership fee, the monthly minimum contribution, a general investing philosophy and approach, a regular meeting time, place, length, and format, a broker to use, roles and responsibilities for club members, and any other administrative task necessary for running a typical organization.
It is likely you won’t be able to get all of this done in the first meeting, but the key is that these basic things need to be taken care of before the fun stuff starts.
Here is a summary of the basic start-up task for any investment club:
- Choose club members wisely
- Adopt a club agreement
- Establish details of operation
- Start a study program
- Assign individual responsibility
- Develop a club name
- Set regular meeting date
- Set a membership fee
- Decide on a monthly deposit
- Select a broker
A Summary of what we have discussed
1. An investment club is just a group of people who want to pool resources
2. Anyone can start/join an investment club
3. Investment clubs are a great way to learn about investing.
4. Start an investment club with close family or friends.
5. Financial literacy is the key to successful investing
6. Make sure each member supports the approach and style of the club.
7. Develop an investing strategy for the club