An investment club, or Share Club, is a great way to increase your knowledge of finances. The stock market can be intimidating and confusing for a beginner just learning how to invest your money, so getting together with a group of people who have similar interests and goals can be educational and fun.
There are two types of investment clubs – formal and informal. Decide which kind will suit your needs.
Informal Investment Club
An informal investment club is a group of like-minded friends that get together to talk about finances. In a non-threatening atmosphere, people can talk about the basics of investing, the stock market, mutual funds, bonds, the financial alphabet of RRSP’s, TFSA’s, GIC’s and ETF’s, as well as other financial matters such a budgeting, credit, mortgages and insurance.
When investing, the people in the group use their own money and make decisions independent of each other.
Formal Investment Club
A formal investment club is, well, more formal and usually deals solely with investing. It is set up like a corporation and elects club officers. Legal and/or accounting advice may be required to set it up and some costs are involved. Each investment club has its own agenda developed by its membership. The group determines a name for the club, how often to meet and what the cap should be on membership.
The elected officers are headed by the president who presides over the meetings and plans activities. The secretary keeps the minutes of the meetings and informs the group of upcoming meetings and events. The treasurer is responsible for opening both a bank account and discount brokerage account and does the buying and selling of stock. The treasurer also keeps accurate records of holdings and the contributions of each member.
Someone is usually selected to plan the educational aspects such as guest speakers, field trips and reading material. Investment decisions are made after a series of discussions.
Benefits of Joining an Investment Club
Being part of an investment club, especially a formal club, is a great way to break into the stock market by taking advantage of the combined investment knowledge of the whole group. There is reduced risk as your own personal contribution can be small while you learn how the market works. As part of a group you can diversify your holdings.
You can make some great investments and the potential profit is usually greater than when individuals make their own decisions. Profits are distributed throughout the membership according to contribution. You can build confidence while receiving support from like-minded people. Regular meetings provide structure and the social aspect keeps it fun.
There is likely an investment club close to you that fits your style. If not, consider starting one yourself with some friends, family and co-workers. Social networking sites are a good way to attract members. If you want to start a formal investment club, make sure potential members are serious and committed.
Make sure your group is not too large. I would say ten people should be the maximum. You want to make sure everyone is comfortable and not too intimidated to share his or her opinions by more aggressive members.
Investment clubs offer a great learning opportunity. Have you considered joining an investment club or forming your own?