Starting an Investment Club

Notice how the title of this blog post is not how to start an investment club, because to be honest I have absolutely no experience with the topic.  Notwithstanding I am taking the plunge and starting an investment club with a few friends, and I love to hear your input.  The idea for an investment club originated about 4 years ago, but quickly died down after my employer told me it was a hassle with regards to compliance.  However, last week after a few scotches (best ideas start with that sentence) I decided with a co-worker to find out what “hassle” meant; turns out the speed bumps weren’t that bad.  So we built a framework to share with others to see if anyone in our life would be interested.

Starting my Investment Club

Preliminary Work to Start an Investment Club

First thing my buddy and I had to do was figure out a number we were comfortable with contributing both to start with and as an ongoing monthly contribution.  We came up with $500 a piece plus $100 per month per partner.  The starting amount will allow for filing fees, and first few purchases.  After that the ongoing monthly contribution will allow us to make a purchase or two but is no where near enough to make the partnership a burden.

Since this was just a conversation between 2 buddies at this point we figured we should come up with some type of investing framework.  He is much more aggressive than I am so just a general investment strategy would be a dead stop for us.  For example, I can’t possibly begin to sell him on my dividend income fund and him getting in and out of the VIX on an hourly basis makes my stomach churn, so we compromised:

  • 25% will be in bear positions – Maybe this means Cash, gold, short etfs, treasuries, etc.
  • 25% will be stable – probably means a long term index based ETF
  • 50% – up to the collective wisdom of the group.  Maybe someone wants to share an idea he has for a short term play, or a long term investment. Whatever it is he has to “sell” it to the group

Third step for us was seeing who was interested in our life.  I reached out to a group of 10 or so people and I guess correctly who I thought would be interested.  The SEC makes it very clear that we do not want passive members,

If every member in an investment club actively participates in deciding what investments to make, the membership interests in the club would probably not be considered securities. If the club has any passive members, it may be issuing securities.

If we are issuing securities we need to register with the SEC.  Since I am not looking for a headache for my $100 a month, I’d like to avoid that paper work if possible!

Our Secondary Steps

  • Currently we are voting on a name.
  • Voting on President/Treasurer
  • Creating a system where only the president/treasurer have access to the accounts but everyone else can see them
  • Determining if we need accounting software

Third Step

  • Need to file partnership paperwork
  • Open bank account
  • Open trading account
  • Fund one with the other
  • Make first trade!

Anyone ever start an investment club? Was it successful?

10 Responses to Starting an Investment Club

  1. I’ve never started one, but I think having one would be pretty sweet. There have been some attempts in my area to make one as a forum for sharing ideas mostly, but the interest just wasn’t there. It’s a shame, really.

    I’d check out http://www.aaii.com to see if they have any standard information/guides on what you need to start an investment club. My guess is that they do have some kind of resource for people who want to start one.

  2. It’s a great idea but not very practical for me at this time. Although I think it’d be a fun way to interact and possibly segue into other financial topics. For some reason personal finance is still such a no-no to discuss.

  3. Will you have an odd number of members so there is never a vote that ends in a tie?

    I am sure that lots of other commentors will tell you about the evils of going in to business with friends so I won’t go on about that.

    I hardly survived the book choices in the book club I used to be in. I am not sure I would be tolerant of other people’s investment choices.

  4. I think in anything you do there is a level of risk involved, as long as the members understand that this is a long term partnership and learn to roll with the disagreements, then you should have fun with this. Will the club be reinvesting dividends or will you be dividing up the proceeds from the beginning?

  5. Great idea! Although I could see why this could cause some problems. Everyone simply has there own investing style. Personally I never tried to invest in a group.

  6. Investment clubs are a great way to learn about investing. Part of the learning is staying in for the long haul. Investing with a group of friends makes it easier to focus your attention on investing on a regular basis. Over the long haul you will learn a lot.

    Learning can mean making mistakes. Learning as a group means you can do it with less capital exposure of your own.

    We’ve got lots of resources to help you get started and to manage your club. We’ve also got an active investment club community that I’m sure would be glad to share their investment club experiences with you.

    Feel free to check us out at http://www.bivio.com and see for yourself.

    Laurie Frederiksen
    http://www.bivio.com

  7. I haven’t really tried this investment club. But I am planning since there are several friend of mine who are encouraging me to try it some time.

  8. I think its an interesting idea, but one of the challenges is probably getting agreement across different investing techniques, strategies and what to buy. I’m very focussed on dividends and dividend income, but I’m sure if I polled my closest friends that I’d get a broad range of interests. Where you have conviction on a particular method, and stock and you are passionate about it, it may be pretty hard to watch the club go in a different way. I think the idea of a club is probably great for people who are interested and willing to learn about investing but dont have a firm view. Of course if you have a club with like minded people investing with a certain strategy, that could be a recipe for success.

  9. A friend of mine considered having an investment club. However he decided it was not worth the headache due to the legal requirements.

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