Forming or joining an investment club could pay dividends!
Playing the stock market and buying and selling shares is an attractive way of making money for those who have funds to invest. Big profits can be made very quickly, and share dividends can earn a significant income without you having to lift a finger.
Investing in shares has become much simpler over the last decade, although it is not necessarily a straightforward process. You can contact a stockbroker who, for a commission, will take care of the actual process of buying and selling shares, although you still have to decide what to invest in and how much.
So investing on your own, particularly if you are new to buying and selling shares, can be a risky business. There is an alternative - joining or forming an investment club. Investment clubs are like minded groups of people who hold regular meetings to make collective decisions about what to invest in, with each member contributing towards the group's total investment.
They are fast emerging as a much easier, efficient, enjoyable, and arguably more profitable way of investing, where all risks and responsibilities are shouldered by all club members rather than just one person.
There are many advantages to be gained from joining an investment club, or forming your own. Not only can they be extremely profitable, you can learn from others and improve your knowledge, and they're fun too. Here I explain all the basics about how to get involved with a club or start your own.
Joining an investment club is likely to improve your overall investment performance. Each member has their own circle of knowledge, deriving from work experience, contracts, shopping habits and hobbies. So, the more members there are in the club, the wider the amount of knowledge available to draw on.
Also, in any club there will be some members with a great deal of investment experience - probably more than you have. Overall, the common interests of the club members - to invest wisely and make money - combined with the amount of knowledge to hand will ensure that your investment performance is improved. And over time you will pick up this knowledge from other members, helping you to improve your investment portfolio.
Another benefit is that the cost of researching share selections can be shared, so more detailed research can be done compared with what you would be able to afford on your own. Also, the cost of buying investment books and publications can be pooled.
Group discussions tend to ensure that investments are made in an efficient manner, backed by good research. This approach to buying and selling shares tends to be more profitable than doing it on a whim.
Investment can be a lonely business. At investment clubs you can talk about and share problems, and draw moral support in tough times. Meetings are social occasions, which on the whole tend to provide fun and enjoyment for those concerned.
Join or Form a Club?
Now you understand the advantages offered by investment clubs compared with investing on your own, you may wish to join one. You might hear about an investment club in your area which has a vacancy, perhaps through consulting friends and work colleagues. Unfortunately, investment clubs don't advertise, so it can be difficult to get in touch with one, but it is well worth asking around.
Once you do find one, you will have to assess whether the interests and overall outlook of the club fit in with your own. Also, bear in mind that some clubs may be wary of inviting in strangers, and you may find that you won't necessarily satisfy a particular group's criteria for entry. Don't be put off if this happens though - there are plenty of groups around, and their members are usually people with 'average' jobs and incomes.
However, you may feel that your best option is to form your own investment club, which is not a difficult process. The advantage here is that you can gather together like minded friends and acquaintances in your area who have a similar outlook on investment.
How to Form An Investment Club
The minimum amount of members a club should have is five, with a legal maximum of 20, who should all be over the age of 18. The ideal amount is between 10 and 15 members. Once you have drawn together your basic members you should decide who else to approach to join, and how many members you want.
You need to agree the monthly subscription fee which you will use for investments. Ideally you want to be able to invest 500 plus per share to get a healthy return, so if you have 10 members then you should have a 50 plus monthly fee per member. When starting out it is worth having a once-only joining fee of 100 plus to generate capital for immediate investment.
Next, you need to arrange when and where the club will meet. This could be one a rotational basis at members' homes, although a quiet pub or restaurant will do.
You should hold an informal first club meeting to appoint a chairman to lead the group, discuss the key points above and decide on a name for the group. Once all the key points such as membership, subscription levels, meeting time and place, and basic policy have been agreed upon, you can organize the group's inaugural meeting, prior to which you should circulate the club's constitution, rules and the agenda for the meeting.
The inaugural meeting is used to formally adopt the club rules, constitution, subscription levels and basic investment policy, as well as to elect a treasurer, secretary and trustees. The treasurer opens the group's bank account, records subscriptions and keeps records of investments and dividends, and the secretary takes the minutes and circulates these, along with the agenda for the next meeting, to other members.
After this, the group is up and running, and free to choose its investments. It is a good idea for the club to adopt a basic investment policy, although in theory club members are free to put forward any suggestions about what to invest in. In practice you will probably find that members have certain areas of knowledge - perhaps about certain markets or firms - and you will tend to stick to investing in these areas.
One investment club, the Beardstown Ladies Investment Club based in Illinois, is famous for its success across the U.S., which has 70,000 such clubs compared with the 1,000 that exist in the UK. The club, formed in 1983, comprises 16 members, who have seen their portfolio increase by an average of 23.4 per cent a year - double the performance of the market during the same period.
The basic strategy used by the Beardstown ladies is solid and sensible, and can be used as a blueprint for success. This strategy is:
Note - don't infer that the Beardstown ladies' success is down to the American market being more profitable - many of their investments were in British companies.
Choosing What to Invest In
Investment policy will vary widely from group to group. You may select a share based on market movements or little known information, or it may be down to a particular passion for the company, or simply a gut feeling.
It is useful to have regular access to share information, and you can find basic statistics listed in the Financial Times and other broad sheets. A more detailed publication is REFS (Really Essential Financial Statistics), which is a monthly publication providing in-depth share statistics. It enables you to seek out the best performing shares, as well as the ones which are forecast to be profitable in the future.
It certainly pays to have market information of this type in order to make an informed decision about what to invest in.