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Setting up an investment club

by Jonathan Adams

You can boost your earnings by joining hands with other investors with similar objectives and goals and set up an investment club. It will be a collective effort which will drive every member of the investment club. Creating an investment club is good for the beginner as well as the seasoned. It will broaden your portfolio if you are an expert investor or help you into the world of investment if you are a beginner. Doing things such as researching companies and keeping an eye on your portfolio can be a lonely activity. Unlike an investment club, you are required to do the entire job on your own and there is nobody to assist you. You are responsible for all your decisions and there is nobody to confirm those decisions or term them right or wrong.

An investment club is a group of people which consists of around 20 persons. This group may include people near you such as friends, family, neighbours or colleagues. The group of people in an investment club come together for a common goal. They pool money and invest collectively in the stock market. Under this investment strategy, each member contributes an agreed upon monthly amount or contributes to the pool which may be any amount ranging between £10 to £100+. Under the investment club strategy, members regularly meet at a place to discuss the performance of the portfolio and draw plans or future course of action. You need to know how often and where you will meet, how much will each member pay each month and other associated details. The next job for setting up an investment club is to write a proper constitution document outlining the purpose of the club and the basis of its operations and rules. At the first meeting you should appoint some officials such as chairperson, secretary and treasurer for the smooth functioning of the club.

An investment club provides the investors an opportunity to share investing ideas from a number of resources. For example, financial journalist John Harrington teamed up with a few friends working in various capacities in the city in 2001. He says, “The theory was that with all our knowledge we’d clean up – and we did beat the FTSE by 4% over the past 10 years”. Investing through an investment club is a great way for novices looking to enter the market but nervous to do so. As head of product management at broker Selftrade, Dave Jeal says, “Clubs are often started by someone who already invests and finds other friends or colleagues expressing interest in having a go themselves”.

“Clubs are a fantastic way to get ideas from people with a real mix of backgrounds, and increase your investment experience,” says Guy Knight, sales and marketing director at The Share Centre – himself chair of a successful club for the past 14 years. And you learn in the club tends to be applied in your private investing too, he adds.

“There are only six of us putting in £83.30 a month (£1,000 a year), and we just meet every two or three months in the pub these days, because we rarely sell and so don’t have a lot money to invest each month,” says John Harrington.

“In many cases members’ contributions include the cost of food and drink for each meeting, but other clubs go further, organising special events and also get-togethers with other investment clubs,” Jeal adds.

The trading account for an investment club is opened in the name of a nominated individual and a back-up who is typically the chairperson and treasurer, who is the only authorized persons for buying or selling shares. The treasurer of the investment club notifies the local tax authorities of the club’s existence for meeting club’s tax commitments. They may also receive and distribute information from the broker on portfolio holdings.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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