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Investment clubs: How to join one or start your own

An investment club of men and women meets in an office
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Investment clubs allow people to meet with like-minded individuals to discuss their investing strategies and goals. In some cases, members of the investment club pool their money and invest jointly.

These clubs can serve several purposes for their members, including maximizing returns, educating members, and discussing potential new investments. They act as a forum to help members achieve better investment outcomes than they could on their own. Whether you are looking for investments during a recession or just more guidance, an investing club is a good place to start.

What is an investment club?

An investment club is a way for people with similar investing values to discuss their strategies and goals. Typically, investment clubs meet at least monthly. Investment clubs usually have elected officials, such as a secretary or treasurer (for clubs that invest jointly). However, different investment clubs have different purposes.

In some investment clubs, members pool their money and invest in the same set of stocks or funds. In this case, investment clubs typically ask for an upfront contribution plus ongoing monthly contributions. Investment clubs often consist of ordinary people, so monthly contributions are reasonable.

Other investment clubs are more ideas-focused, where each investor maintains their own portfolio. For example, you might work through possible investment scenarios or ask other members for advice. These investment clubs might invite guest speakers or facilitate an open forum for members to discuss ideas.

How to join an investment club

Finding an investment club to join is usually not too difficult, as they are quite popular. You can find online investment clubs as well as in-person clubs if you live in a major city. An easy way to start is by browsing BetterInvesting’s chapters by state to find a club near you. Alternatively, you can search online for investment clubs in your area.

Keep in mind that investment clubs can focus on different goals. For example, you might find investment clubs on the Meetup app. There, some clubs focus on a specific type of asset, such as real estate or options. Of course, the first step is to find the right kind of investment focus for your needs – if you want to invest in stocks, joining a real estate investment group won’t be the right fit.

But how each club is structured is also important. You can attend a meeting with a club BetterInvesting lists on its site and see how their meetings are. First, you’ll want to find out whether the club’s members pool their money or invest separately.

But you should also observe the level of expertise among the members and what they are investing in. Those investments should align with your goals. Additionally, pay attention to how the meeting is structured and whether you learn something.

4 tips for starting your own investment club

There are a few reasons you might want to start an investment club. For example, you might find that none of the ones you observe match your investment philosophy. Or maybe there are none in your area. Either way, here are some tips for starting your own investment club.

1. Observe established clubs

When you are first getting started, it can be useful to observe (or even join) existing investment clubs. You can do so with the tips mentioned previously, such as browsing BetterInvesting’s directory or searching for groups nearby. When you observe established groups, it will give you a sense of how they normally work – and how you can tweak their approach to fit your own group’s goals. Otherwise, “you don’t know what you don’t know.”

2. Determine group goals

Your group’s goals will become the foundation on which your club will be built. For example, are you interested in finding investment opportunities in emerging industries? Perhaps you simply want to find local investors willing to pool their money and maximize returns. Answers to these questions will help you narrow down the best investments to make for your club.

3. Form a legal entity

Creating a legal entity for your investment club such as an LLC or an LLP can help you formalize things. The LLC or LLP usually consists of 10 or more members who will participate in the investment club. It can also serve as a legal framework to address any member concerns. Plus, it might have accounting records if your club invests its members’ money.

On that note, registration with the Securities and Exchange Commission (SEC) may be necessary in some cases. For instance, if a member is making investment decisions or advising others on how to invest, it may be legally necessary to register as a financial advisor.

4. Open a brokerage account

If your club will invest members’ money, you will need a brokerage account. While this process will be similar to opening a brokerage account as an individual, some online brokers may have accounts tailored to investment clubs.

When shopping around with different brokers, you will likely find that some have more extensive offerings than others. Those with fewer features and less extensive customer service options will likely cost less, but you will want to be sure whichever option you choose aligns with your club’s goals. Perhaps a cheaper broker omits a feature your group needs or its customer service isn’t adequate.

At this stage, you can also run some stock market simulators to see how certain decisions will affect your investments before fully diving in. These can be a great way to track potential investments, too.

Investment club risks

Investment clubs can be valuable in many ways, but they are not without their risks. For instance, if your group pools its money, one risk is that members may want to withdraw their money after a short time, such as six months or a year. This can make it difficult to manage the pool of cash, so it’s important to have everyone on board for at least several years.

Another risk is that a lack of investment knowledge can cause the group to collapse. Naturally, this problem is especially acute for newer investment clubs. You can overcome this risk in a few ways, including establishing clear investment guidelines.

Lastly, there is a risk that group members cannot come to an agreement on how to invest. This highlights the importance of strong leadership and officers who can keep the group running smoothly.

Bottom line

Investment clubs can help people learn and discuss potential investment strategies as well as their goals. Some investment clubs pool their money, which can help people be a part of a cohesive investing strategy. You can find an investment group near you or start your own. The latter is more involved, but certain principles will help you succeed, such as determining group goals. Just be aware of the risks involved, including people withdrawing money too quickly or a lack of investing knowledge.

Written by
Bob Haegele
Contributor
Bob Haegele is a contributing writer for Bankrate. Bob writes about topics related to investing and retirement.
Edited by
Senior wealth editor