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?