If you’re interested in investing but don’t want to go at it alone, you can join an investment club or even start one of your own. An investment club comprises members who study stocks, bonds and other investments, and who many times pool their money together in order to make joint investment decisions. It’s a great way to educate yourself and others, and to minimize risk by putting your heads together.
- Define goals. Are people more interested in the club for its educational value, or for the financial returns? Is everyone interested in short-term or long-term investing? (Most investment clubs use a buy-and-hold strategy.) Do you all share a general investing philosophy and approach?
- Determine how much each member can contribute financially on a monthly basis. Is this consistent with your goals?
- Some clubs make the initial contribution higher to ensure commitment.
- If people make different contributions, their returns can be in proportion to that.
- You can either pool your investment dollars and invest together (traditional) or invest through individual accounts (self-directed).
- This is also a good time to judge whether you really want to invest with these people. Here are some red flags to look for:
- fail to pull their own weight (and a club that allows them to stay.)
- only have a mild interest and therefore do not participate regularly.
- fail to show up, or pay on time.
- fail to choose an investing strategy and stick with it.
- will allow a stock to be purchased without sufficient research.
- fail to respect that the club is a business.
- fail to seek means to keep it interesting and focused on solid investment education.
- will allow somebody else to do all the work.
- fail to expect flawless record-keeping
- too much finger-pointing going on when facing an unprofitable investment or missed opportunity
- Decide when and where to meet (living rooms, local library, church, coffeehouse–depending on size of group). Meetings should last 1-2 hours.
- Define roles within the club (president, secretary, treasurer, investor) – what are their responsibilities? The terms should be one or two years, and the treasurer should have an assistant who can move up later.
- Appoint individuals to roles.
- How will the club manage payouts, divestiture (reducing assets or investments) or dissolution?
- What are the policies on gaining new members? What about when a member wants to leave the club?
- What will be the name of the club?
4. File the necessary paperwork.
- Club operating procedures, or operating agreement. This will outline all the policies discussed in the previous meeting, and should be signed by everyone in the group. There are sample contracts and agreements available in books.
- If you’re setting up an account with a bank or brokerage firm, you’ll probably need Articles of Incorporation or a Partnership Agreement in the US.
- If necessary, apply for an Employer Identification Number (EIN) and file a “Certificate of Conducting Business as Partners” form.
- Review club financials (overall gains or losses, individual investment progress and cash balance available for investment).
- Do presentations on various topics.
- Discuss/decide how to invest.
- Trust has to be established for the club to be effective.
- When an investment goes wrong, use it as a learning experience and go back to the drawing board to change things if need be.
- Don’t invest immediately. Give the group a couple of months of just depositing money. This will weed out those who won’t really remain involved or can’t afford the club.
- Some members may want to embezzle funds. This is why having an operating agreement and ironing out the details is important.
- Make sure that everyone understands that they might take a risk by investing because not all investments will be profitable.
- Beware that there can be too many emotions going on within an investment club:
- When things are going great, protagonism and greed might take over
- When things are going bad, animosity, blame, and distress can shadow over the club
- Proper planning, a supportive group, and an understanding leader might be needed to keep the cohesion and optimism of the group
Source : http://www.wikihow.com/