1. Find potential members for your club. They can be local, so you can meet in person, or they can live far away and you can meet online. Aim for a club with 10-15 members, but anything from 6-20 is workable–when you have fewer people, you might have trouble getting enough funds together to invest; and with a large group, maintaining quality discussions and finding a place to meet both become concerns. Spread the word – tell family, friends, and co-workers about your club-in-the-making. Put together a flier describing what you have in mind and pass it out, post it on message boards, send it through e-mail, etc.

2. Hold a preliminary meeting. Get together with the people who are interested, provide snacks and refreshments, and discuss the formation of a club:

• 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

3. Hold an organizational meeting to iron out the details. Have another get-together with the people who are still interested and discuss the following:

• 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.

5. Open a brokerage or bank account. Most clubs start with both a checking and brokerage account. Choose a broker who suits your needs (full-service, discount, or online). A full-service broker will provide advice and may attend a few meetings, while a discount or online broker will leave you to your own devices (and many investment clubs end up choosing the latter).

6. Develop an educational agenda. In many cases, investment clubs are formed by people who are learning about investing, and not everyone is on the same page in terms of their knowledge base. Ask each member what big questions they have about investing that they’d like answers to (having them submit questions anonymously is also an option) and then discuss which topics you’d like to review as a group.^[1] Make a “syllabus” and decide who will be doing the research and presenting the topic to the group.

7. Invest as a group based on your regular meetings (usually once a month).

• 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.