First off, no, this is not an article about investing in a club which only consists of your relatives as members.

Oh no, this is about a new Investment Club phenomenon which has evolved over the last 5 years (quite by accident) and which is currently being "trailblazed" by H&G Investments.

Interestingly enough, there was a recent thread on the Investment Clubs board which featured problems about paying members off who should leave, and it was this sort of problem which was instrumental in this phenomenon developing in the first place.

When H&G started in October 1994 we all put in £25 subs and a further £25 to get it going. For the first year the entire fund had not built up to much more than the actual subs that had been paid (about £4,500 in total), but then in year two we started to do rather well. There were two members who wanted to withdraw some profit from their holdings, although this did not cause us a problem as the amounts concerned were relatively small. We then got to thinking what would happen if in a couple of years' time people wanted to withdraw bigger sums, the sort of sums we could only raise by selling stock.

We were, after all, an Investment Club, not a loan club, and we wanted to avoid restricting the club's growth simply because some members wanted to "cash their chips".

We therefore decided to start another club, one which could run alongside H&G, and which would have a limited life of 5 years, after which time all assets would be realised and the club wound up. This club would have a "no withdrawals" rule, and so every member would be effectively making a 5-year commitment. At this stage I envisaged all the H&G members joining the new club, and it didn't really occur to me that they wouldn't. As it transpired, only 10 of the members signed up for club 2, but (again due to a coincidence) the press coverage which we had received up to that point had instigated a lot of interest locally and we were receiving letters from people asking to join. This was sufficient to launch a 2nd club in May 1997 (The Brass Monkeys) with a 5-year lifespan and a full complement of 20 members.

"Come on, we know all this," I hear you say, "get on with it! Cut to the chase, Man!"

Well, the point is that I thought it would be rather good if, 2½ after the start of the Brass Monkeys, another club were to start, also for a 5 year term. This started last October (The Dirty Harrys). Can you see where this is going?

There are now 3 clubs, all with 20 members and with about 10 members who are in each one. We have a "family" of clubs!

Each time a new club starts we learn from mistakes made previously. The newcomers who join are often enthusiastic and keen to learn, and I know at least one of our members has been instrumental in setting up an "unrelated" club in his workplace. It is a great idea; members of H&G invest for the long term, and the 10 common members who are in the 5-year clubs and who can also afford to put in 2 or 3 lots of subs are due a mini-payout every 2½ years. This stops the need for them to approach H&G for money, enabling the fund to grow, and every 2½ years a club will wind up, only to reform again almost immediately for another 5 years.

Good, eh? 3 nights a month down the pub as well!

The other clubs in the "family" can be set up to invest specifically in certain sectors, or to try and achieve different aims and objectives. One could invest in technology, for instance, and another could invest in, say, Banking and Finance. Or one could be top 100 and another AIM only. Your choice. This widens the net, expands the "circle of competence" (to quote ProShare) and by its very nature reduces the risk for each and every indivual.

But it's more than that. We openly "adopt" all new members into our "family" and many have become firm friends. A previous article focused on the need to "Keep it Social". Well, we have started having "joint" gatherings. Last year we had a "All Clubs" BBQ in one of the member's gardens with partners and children also being invited and it was a chance for everyone to get together and have fun by NOT discussing finance for once! In the spring, we are having an "All Clubs" Xmas do at Romford Dog Track (just for fun). I don't believe that you can be a successful investor unless you have some gambling genes inside you somewhere!

Also, by starting new clubs, we can keep our doors open for new members to join our clan and hopefully pick up a few Foolish thoughts along the way. 90% of our novices have gone on to invest in their own right in the markets. That is a big buzz for me, seriously, especially when they are adopting the Fools principles and I just know that in 10-15 years time they are going to be sitting on serious sums of cash. A club I started has enabled them to do this. Brilliant. They will get the confidence and ability they need to "trade" through their retirement and ensure that they need never worry about putting two bars on the fire, and also that their children don't go without.

So, in order to maximise long term growth, consider setting up another club or two. Start a "family" and watch the benefits as they grow up.

Related Links
• Investment Clubs -- Keeping it Social
• Investment Clubs message board

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