The history of investment club can be traced to the 1800s when it is alleged to have first been formed in Texas to spread financial risk away from cattle. Today, investment clubs have evolved and they are fast gaining popularity as an ideal investment platform amongst investors who are concerned with the idea of group investing.
In this article, you will learn all you need to know about Investment Clubs and how you can successfully establish one.
Table of Contents
What is an Investment Club?
According to SEC(Security and Exchange Communities), it is a forum or group of people who partner with each other to pool money to make investments. The pooling of money is made through individual contributions to attain a whole amount which is further used for investing in whichever investment option the club agrees on. The investment could be stock or other financial securities and instruments.
How does an investment club work?
Before, you ask the question of “how to start an investment club”, it is important to know how the club works as it will provide you with insight to establish a successful one.
Here is how an investment club works:
An investment club works as a meeting of a group of people (could be on a periodic basis) who meet to formally discuss, and arrange how to make investments with the money pooled from their contributions. Most investment clubs work as a partnership, members of the club are required to study different investments of which the investment with the majority number of votes from the club members, will be the investment that would be bought by the money pooled earlier or sold.
Key Things To Note About:
- In an investment club, the money used for investments is pooled from club members, when profits are made, it is also shared amongst the members.
- Each club member is required to participate in the decision-making process (through voting) and also to satisfy the educational(research) requirements.
- It can be informal or governed legally(written agreements, charters etc). The latter suggests partnership.
- Also, they are self-managed and certain payments are usually required to be made regularly by members.
Becoming a member of an investment club or establishing one has several benefits to be enjoyed. Some of these benefits are;
The information offered during club meetings is educational and expository. Amateur investors can learn more from here and deepen their knowledge from the several kinds of research that would be engaged in.
Ease of Operations
Investment clubs are one of the easiest investment groups to form and maintain. Also, it is economical as the capital is going to be secured through contributions.
Reduced financial risk
The feature of pooling money through members’ contributions provides lesser financial risk as members contribute money at a lower transaction rate and if a loss occurs damage is reduced. Also, in the instance of investment loss, the loss is shared amongst partners/members.
Promotes Business Connections
Participating in an investment club offers an incredible way of establishing relationships with individuals who are in the same niche. The various types of investment clubs such as high school extracurriculars, stock, mutual funds, Real Estate, Business, Hybrid etc offer an opportunity of building long-lasting connections.
How To Start An Investment Club
Now, here are a few tips on how to start:
As it is popularly known, the best teachers are knowledge and experience. Gaining knowledge on how already existing clubs operate and are managed will guide you with the right information needed to start an investment club. If you’ve got time, you should consider joining one as it will get you acquainted with the internal processes and allow you to develop better ones for your club.
Choose an organizational structure
This stage is similar to a business plan. Here you will have to consider what the goals and objectives of the investment club will be, and what is going to be the leadership process of the investment club. What happens if a rule is not obeyed by the club members also consider how meetings will be held-is it going to be daily, weekly, biweekly, or monthly? Also, consider how the records will be kept, choose a legal structure and create an operational plan to guide every required process.
The success of any club is dependent on its members as the decision makings will be made by them. It is therefore important that you consider candidates who share the same goals as you, are trustworthy and are willing to actively participate.
Yes, you should register your club with the mandated authority if it is a necessary thing to do in your country although some countries do not require this. The basic investment club registration is usually with the SEC, but you should research your country’s guidelines if there is more to be done.
An investment club is an ideal place to learn about investment strategies and set goals while building new business relationships and investing at a lower transaction fee to make a profit / more income at minimal risk.