It is funny how sometimes someone brings up something you were thinking about – probably has something to do with “mind-mend” (Break up Reference – anyone? anyone?). Well, lately I have been thinking about setting up some sort of non-qualified (i.e. not retirement $) investment schedule. What is stopping me? That stupid stupid debt meter to the right of this post.
Well this co-worker asked if I wanted to start an investment club. The idea really intrigued me.
What is an Investment Club?
The SEC provides us with the following definition:
An investment club is a group of people who pool their money to make investments. Usually, investment clubs are organized as partnerships and, after the members study different investments, the group decides to buy or sell based on a majority vote of the members. Club meetings may be educational and each member may actively participate in investment decisions.
I think this would be a really cool thing to do with a bunch of buddies. But the main problem is…what would the goal be? Are we a buy and hold long term club with monthly dues? Are we searching for values with a lump sum buy in? This would have to be discussed with all those interested.
As I have said in the past, I have a NEED to analyze things. Notwithstanding the legal hurdles of creating a partnership which will be the legal entity investing (not a huge deal with MyCorporation or similar service), there are a few details which should be thought about.
Items to Think about Before Setting up an Investment Club
The article does a great job – so some items to think about:
- 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. Aim to form a club with 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 assume that you’re doomed if your group is composed only of utter novices.
- Distribute information about investment clubs to anyone who has expressed interest.
- Gather all interested parties for a preliminary meeting. Meet to discuss (A) whether you have enough in common, (B) how you’ll be organized and run, and (C) whether people are still seriously interested in forming a club.
- Make sure that you all have similar or compatible investing goals. If some people want to double their money in two years and then get out, that’s not only unrealistic, but also probably at odds with those who want to learn and slowly grow their savings.
- Agree on the amount of the monthly minimum contribution. You don’t have to set this as high as possible. Remember that this is a learning activity, and you can always increase the amount at a later date. Many clubs allow members to contribute more than the monthly minimum level if they so desire.
- Also, contributions to the club shouldn’t necessarily be the only investment you make. You might be contributing $25 per month to your investment club, but putting aside $150 per month for your personal savings and investing.
- To the degree that you can, agree on some common ground regarding a general investing philosophy and approach.
- Agree on a regular meeting time, place, length, and format.
- You’ll need a name for the club.
- Agree on how you’ll be organized legally and operationally.
- Agree on what responsibilities there are, and what kinds of officers you’ll need to elect to take on these responsibilities. Clarify what the responsibilities of the officers, as well as club members, will be. (Remember that even regular, non-officer members have responsibilities.) Elect your officers in one of the first meetings. Typical clubs have:
- A president/presiding partner, who sets meetings, presides over them, and plans activities.
- A vice president/assistant presiding partner, who fills in when needed and might also run the education program
- A financial partner/treasurer, who deals with the brokerage, buys and sells stock, and keeps records of the club’s holdings as well as each member’s share. (This needs to be a careful, detail-oriented, and responsible person.)
- A recording partner/secretary, who keeps minutes of each meeting, reminds members of meetings when necessary, and possibly mails out minutes to members who miss a meeting.
- Some clubs have a separate education officer, responsible for planning (with the input of the group) an educational program, which might include presentations, field trips, guest speakers, and assigned reading.
- Assign someone to look into choosing a broker.
- Decide on an educational agenda.
- Make a list of member interests and expertise.
- Finally, agree to have fun and to keep your meetings friendly and cooperative.
Any other details that I didn’t highlight? Has anyone done this? Good experience? Bad experience?
Interested in Starting one?
