A Few months back I discussed some of the benefits of joining an investment club, if you wish to join an investment club but are unable to find one I suggest you start your own. Starting an investment club does not have to be very complicated and you do not need dozens of members, just a few are sufficient. I started an investment club about a year and a half ago with a few people and with the market crash we took a big bit, but we all learned a lot from it. Here is a how you can start your own investment club in a few simple steps.
You obviously need members to start an investment club so go out and look for them. Start asking friends, co-workers and maybe family members if they would be interested you can also use social networking sites such as Facebook and twitter to solicit for members. Just make sure they are serious and you feel comfortable working with them. Often most people agree and illustrate interest but after a few months they drop out, so only accept serious and committed members.
If you want to learn more about investing, check out Excess Return and download a great free Investment Guide E-Book!
Formal vs. Informal
Once you have gathered sufficient members you all need to decide on the structure of the club. Do you want it to be formal or informal? If informal, how will you handle the finances? If formal, how will you register it? Both have pros and cons, personally I find formalizing it works often better in the long run but it has some costs associated with it. If you do decide to formalize it you need to decide on the structure (partnership, corporation etc).
Agreements, By-Laws & Other Paperwork
After you have decided on the format and on an appropriate name for the club, it’s time to draw up some paperwork. If you have chosen to do it as a partnership you will need partnership agreements, by-laws and maybe code of ethics. Everyone needs to agree on these documents as they will be your club’s constitution and will dictate what can and can not be done. All actions need to be approved according to these by-laws. These documents should also include your clubs investment objectives (e.g. 15% annualized return) and what types of investments you are acceptable (stocks, bonds, options, short etc).
Register as Partnership
After all documents are drawn and everyone agrees on them it’s time to make this a legal partnership and register it with your province or state. Once you register the club officially you will receive confirmation and will need this for the next few steps.
Open a Bank Account
Now you need to open a bank account which will have to be a business account registered under the club’s name as stated in the partnership agreement. You will need your signing officers present in order to open the account. Select an account and treasurer who are most suitable for your club’s needs.
Open Discount Brokerage AccountIn order to purchase securities you will need to have a brokerage account, find a low cost discount brokerage account. Almost all discount brokerages now open accounts for investment clubs so make sure you ask before opening the account.
Make First TransactionNow you are all set and ready to go and ready to purchase your first security. Often you will have stated the procedure for making transactions, ensure you are following the agreed on procedure for purchasing and selling securities. Most likely you will have a meeting and present a specific security and why it is a good buy for your club than you take a vote and if agreed your treasurer makes the purchase.
Often it takes several meetings and months before you can get to this stage, so patience is needed.
Hold Regular Meetings
Holding regular meetings are the most important part of an investment club; this is where the actual learning and knowledge sharing takes place. In you partnership agreement you should have indicated the frequency and purpose of meetings, the club secretary should send out email reminders a few days before the meeting takes place. Come to the meetings prepared to make the most of them, usually it’s a good idea to allot about half an hour for socialization so that it does not interrupt the meetings. During the meetings you discuss your current holdings and any changes needed, you can present new purchase ideas and/or discuss other relevant topics (e.g. learning about options and derivatives etc).
Although the main purpose of an investment club often is education, fun is a big part of it.
Other Helpful Tools:
Iclub [We use Iclub for accounting and tracking purposes, it also provides other tools such as stock screener for an extra fee]
Are/were you a member of an investment club? If so, share your experience. What are your thoughts on investment clubs?