Question of the week:I'm interested in learning more about stock investing, and I'm wondering if an investment club would be a good way to do that. What do you think? --James from New Jersey
Dear James,
An investment club--a small group of people that pools small monthly contributions and meets regularly to choose stocks to invest in--can be an incredible learning tool. There are now over 30,000 clubs nationwide registered with the National Association of Investors Corporation (NAIC), a non-profit group dedicated to helping clubs and individuals learn about investing. And with average total assets of slightly more than $63,000 per club, it's clear that these clubs take their investing quite seriously.
I'm a big fan of investment clubs, but it's important to know that they're not right for everyone. It takes a real commitment to working together as a group, something that many "lone wolf" investors are not all that inclined to do. Take the experience of one Armchair Millionaire community member:
"I belong to a club that started with 25 women which quickly developed into individual cliques--not good. I almost dropped out, then 10 people quit enmass, and then a few more. It was the best thing to happen. We are now a seven-person club, and small enough that everyone is heard, not just the loudest or the person with the most investing knowledge. Will it work? Who knows, but it sure is fun trying! Have patience, have a plan and stick to it." --Patty S.
If you think you might be right for a club, I definitely encourage you to give it a try. Since it can be difficult to find an existing club that is looking for new members, it's often easier for people who want to join a club to start their own. My checklist has the essential steps.
The Armchair Millionaire Checklist for Starting an Investment Club
- Find the right people. Talk to friends, co-workers, neighbors and family members to see who is interested. Chances are that you'll have some drop-outs, so shoot for an initial group of 20. Remember that these are people that you'll be spending time with on a regular basis, so everyone should enjoy one another's company. It is also helpful to enlist people with a variety of interests and occupations.
- Set up an initial meeting. You'll do two important things at this first meeting. First, for the club to be successful and harmonious, members need to be aligned on their investing approach. If some want to pursue a short-term, active trading strategy, they're bound to clash with others with a long-term, buy and hold philosophy. Second, you need to make sure that everyone is committed to doing the work that will make the club a success. If you can take care of these two items, you'll be ready to move ahead.
- Take care of the nuts and bolts. Every club should adopt partnership and operating agreements, elect officers and set up a brokerage account. You will also need to agree on the specific responsibilities of each member.
- Get to work. You'll need to choose potential stocks to purchase, research each one and then make a decision on buying. The NAIC has numerous excellent resources to help you do this in an organized, efficient way, including a comprehensive stock selection guide. It can be found on the Web at www.better-investing.org.
- Begin investing as soon as practical. Many clubs sit around for a year or longer before buying their first stock. Buying a few shares will give your club something tangible to focus on, and as you follow your initial purchases, you'll learn quite a bit, even if some of your early purchases turn out to be mistakes.
THE BOTTOM LINE: Investment clubs are a terrific way to learn a disciplined, methodical approach to investing, and have fun at the same time. And with a minimum monthly contribution of just $20 or so, almost anyone can enjoy the benefits of club membership.
