How Anyone Can Start a Money Making Partnership With an Investment Club

Have you always wanted to enjoy the sort of profit opportunities that are only possible from stock market investment – where the average long term gain has exceeded 10% a year for decades – but been put off by either the complexity or the cost? Or maybe you are already a shareholder and keen to reduce your risks and increase your returns? Either way, you should consider becoming involved with an investment club.

The investment club concept is simplicity itself. A group of friends, colleagues or neighbours pool their money in order to invest in stocks and shares. To get the club started members put in a lump sum – perhaps a few hundred pounds – after which they each make a fixed monthly contribution. Some clubs call for as little as £100 a month investment, others set the limit somewhat higher. Once the club has sufficient funds it will start to make investments. At any point individual members may withdraw their cash and a collective decision can always be made to wind the club up.

As a way of making money, investment clubs offer some fantastic benefits.

To begin with, they overcome one of the biggest problems facing private investors: how to diversify. The best way to avoid losses and optimise profits when investing is to put your money into a portfolio (or range) of different company shares. There is no magic number of companies you should invest in, but I would have said the absolute minimum was 15. Due to the cost of buying and selling shares it is rarely worth investing less than £2,000 in any one company so for a private investor to even begin to diversify he or she must have at least £30,000 – and ideally considerably more. This is a lot of money for many individuals to find but not for an investment club. For instance, a club with 20 members contributing £300 each on day one and £25 a week thereafter would manage it in under a year.

The next advantage that investor clubs offer is that the members are pooling more than their money. Deciding which company shares to buy in order to maximise your returns is a time-consuming business. First you have to select the sectors you are interested in. Then you have to pick out companies you believe will do best. Given that there are hundreds of companies listed on the London Stock Exchange not to mention all the other stock markets around the world it is definitely a case of ‘many hands make light work’. Furthermore, different members of the club may have specialist industry knowledge that can further boost the chances of success.

This leads to another reason for the popularity of investment clubs. They are an ideal way for novice investors to learn about stock market investment quickly and without the worry of making costly mistakes. Speaking of costs, investor clubs are the least expensive way for a private investor to enjoy share ownership. This is partly because it is almost impossible to buy a worthwhile number of shares when you are purchasing them on a month-by-month basis. And partly because all the costs associated with buying and selling shares will be divided between the club members. What’s more, as club members donate their time and expertise for free, there should be no other expenses such as management fees.

The first ever investment club was founded in Texas as long ago as 1898 and since then hundreds of thousands of clubs have been established worldwide. Here in UK investment clubs were relatively rare until quite recently. Over the last few years, however, they have become increasingly popular with new clubs being started every week.

Incidentally, a word of warning about the various companies trying to cash in on the growing popularity of investment clubs. These are generally trying to sell seminars, software, financial advice or stock broking services and should be avoided. There are only two non-profit investment club organisations offering free, worthwhile advice. These are Pro-share in the UK (http://www.proshareclubs.co.uk) and the National Association of Investors Corporation in the USA (http://www.betterinvesting.org). Both can furnish information and case histories. The latter are especially encouraging as many investment clubs achieve well above average returns.

Although the key reason to establish an investment club is to make money, there is another advantage that shouldn’t be overlooked. Being part of a club is extremely enjoyable!

Leave a Reply

Your email address will not be published.