The Motley Fool

Starting An Investment Club

4 Tips for Joining an Investment Club

Make a long-term commitment

Investing is a long-term business so any membership of an investment club needs to be thought of along the same lines. You’ll need to commit both time and money in order to make the most of your membership.

Make it fun

Investing can be a dry business but it certainly doesn’t have to be. In fact, many clubs hold their meetings in pubs and perhaps take this notion a little too literally! So make your club as much about the social aspect as the financial and perhaps even consider doing some hands-on research to investigate the products and services that are produced by companies you’re interested in buying.

Make sure you mix it up

Most investment clubs have a mix of abilities and experience when it comes to investing, but you don’t want the same few people driving everything or doing the same thing year after year. So mix up the roles and make sure that everyone gets the chance to contribute share ideas, do some research, and fulfill the various admin roles.

Make sure you keep good records

It’s normally the role of the club treasurer to handle things like the bank account and share dealing transactions, but make sure detailed records are kept so that everyone knows the details of any income they receive and any profits made as they may need to put this information on their tax returns. There will also be occasions where some people leave or new people might join, so you need to make sure everyone is treated fairly when this happens.

How Are Investment Clubs Set Up?

Most investment clubs buy the Proshare Manual, which currently costs £25 plus postage, as this sets out most of what you need to know to set up and run an investment club.

You’ll need a basic legal agreement that covers how the club is run. You’ll also need to set up a bank account to collect regular contributions and a share dealing account to buy and sell your investments.  

Three key roles are the Chair, who runs the meetings, the Treasurer, who looks after the financial aspects and keeps the records, and the Secretary, who keeps records of what’s discussed and decided in each meeting. It’s a good idea to shift these roles around, perhaps changing who does them each year.

You should decide how many people you want to involve and how new members will be accepted. You also need to decide how much money to put in, how frequently, and whether everyone puts in the same amount. You’ll need to decide a name for your club as well. Setting up a preliminary meeting to discuss topics like this is often the best approach and makes sure everyone is in agreement before you get started investing. 

Of course, you’ll probably want to tweak how things are run as you go, when you learn what works and what doesn’t, but having a basic framework that everyone has signed up to can keep everything running more smoothly and efficiently.

Tips for Joining an Investment Club

Clubs occasionally seek new members to replace those who have moved away or left for other reasons and they may try and invite new members to join. However, this tends to be an infrequent occurrence so it can be hard to find the right club that’s also looking for a new member.

Members of such clubs probably already have some friends they plan to invite. Your best bet might be to ask people you know whether they are in an investment club and whether they are looking for new members.

You might expect that if a club’s account has grown over many years and its average member’s stake is in the thousands of pounds that a new joiner would be expected to contribute a huge sum of money in order to join. That’s not true, though, as the accounting methods that most clubs use permit new members to begin by just contributing the standard monthly amount. Longer-term members will each retain bigger pieces of the pie, and everyone’s piece is calculated according to how much was contributed when.

The Bottom Line

As with many things, what you get from an investment club will depend in large part by the effort you put into it. It’s a great way to learn about investing or perhaps experiment with a slightly different style of investing that you don’t normally use with your other investments. 

Key Takeaways

  1. Think Long Term – investing works best when it’s done for a period of five years or more as returns can vary significantly from one year to the next.
  2. Define Your Style – decide the way your club wants to invest, e.g. will you avoid certain sectors on ethical grounds or will you stick to UK-quoted companies?
  3. Join a Club Association – sharing ideas and resources with other clubs can be a great way to learn, discover new ideas and techniques and to keep the whole experience exciting and interesting for everyone. 
  4. Always Value Education – those that treat their investment club membership as an ongoing learning experience seem to get the most out of it. You’ll probably have a mix of specialisms and professions across your whole group and getting a diverse range of views can lead to much better investment outcomes.

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FAQ

How do investment clubs make money?

Investment clubs make money by making profits on the shares they hold. Typically, members will all contribute a set amount on a regular basis and this money is then pooled and invested, usually in stock-market listed companies.

How do you start an investment club?

Get a group of like-minded people together who want to join a club and hold an initial meeting to set out some guidelines. How many people, how much to contribute, who will perform the key roles of Chair, Treasurer, and Secretary, which bank account and broker to use, and so on. Once you have stuff like this decided, then you can use a resource like the Proshare Manual to help set up the basic legal agreement before you start investing for real.

What are the 4 types of investments?

The four main types of investment are:

  1. Shares or equities – these give you part ownership of a company
  2. Bonds or fixed income – loans to governments or large companies
  3. Property – houses, offices, warehouses, shops etc
  4. Commodities – gold, oil, copper, coffee etc

Most investment clubs will stick to shares but there are funds and other methods available that let you buy and sell the other main types of investment.

Why do investment clubs fail?

Investment clubs normally fail when too many people leave. Sometimes people leave for understandable reasons, they move away perhaps, but usually it will be because they are not enjoying the process as much as they once did. The level of profits made by the club are another key factor of course and if the share picks made aren’t making any money or the stock market itself in the doldrums then people are more likely to drift away.