Want To Start An Investment Club?

This post is the first in a three-part series discussing Investment Clubs, their formation, and operational realities.

As expected with a post like this, none of the below should be construed as legal or financial advice. Please consult your own legal and financial advisors before investing or starting an investment club. Be sure to come back next week as I discuss organization and administration, opening accounts, and making investment decisions as a group.

Interested in investing with a group but not sure what that entails? Having founded and invested with an investment club for the past five years, I have found it to be a tremendously rewarding and educating experience. Over the next couple weeks I am going to go into some of the finer details of starting an investment club, opening accounts, and making investment decisions as a group. Finally, I will discuss some of the specific rewards and risks I’ve seen in my own experience with investment clubs.

Starting an Investment Club

So what is an investment club? Investment clubs are small groups of individuals who get together to discuss investing, and pick various stocks, ETFs, or other investments. There are two types of investment clubs, with one being self-directed and the other a more traditional club. A self-directed investment club involves each member investing their money on their own without a pooling of resources while a traditional investment club combines the members contributions in one brokerage account. I will be focusing on traditional investment clubs throughout this series as a self-directed club reflects purely a sharing of ideas, as each individual may or may not fund the selected investment in their own accounts.

Investors in a traditional investment club will get together, either in person or digitally, on a regular basis to deposit additional money, and determine their future investments.  Most investment clubs require their members to invest the same small amount of money on a monthly basis. With these funds the group will collectively decide on what specific investments to put their money in and how to best diversify in a manner that meets the club members investment goals. Prior to any investment, it is important to get the right group together.

Finding the Right Group

In actuality, identifying a group of like-minded individuals whom are all compatible is huge. Be it family, friends, or even co-workers, finding people who will support and be able to agree on an investment strategy is important. As Evan at My Journey to Millions has found out, not getting a completely solid group of individuals together is going to make finding success with your investment club a bit more difficult.

In order to increase your odds of success, you will want to find people who are similar to you in your investment knowledge and passion. Two Certified Financial Planners (CFP) and two people who know nothing about investing will make for a very lopsided discussion when plotting the overall direction of their club. Additionally, talk to prospective members and find out exactly how much time and money they are willing to commit. Members of an investment club must be committed and willing to demonstrate that the club is priority over the course of their involvement. Investment clubs are not for the passive investor as they rely on the collective group to make decisions.

Not to recap already, but having a solid group of individuals is the most important aspect of an investment club. Period. End of story. Do not rush to get started with an investment club unless your group has been solidified and everyone is on the same page. I will get more into the “same page” concept in some of the later posts in this series.

What about my experience? In the spring of 2008, I decided to start an investment club with my two brothers and best friend from college. My motivations were twofold; one, I thought it would be an awesome way to keep in contact with my best friend from college, and two, it would be an opportunity to really learn about investing, with all four of us being relatively equal in investing experience at that time. Since that point five years ago, we have all grown into various levels of investment acumen. That being said, the foundation from five years ago has held strong throughout the course of time.

An important thing to note about my investment club is the size of my club. We are much smaller with just four members than most investment clubs which range from 8-15 members. This was very intentional as we determined that we did not want to sacrifice communication, efficiency, and trust by expanding the group.

Hopefully, I haven’t scared people off from starting an investment club, but just be sure to take the process slow. As we continue through the series I hope I will answer some of your questions about investment clubs. If you have anything specific you’d like to know, please contact me, or ask in the comments below! Come back next week for part two of three!

If you haven’t yet, be sure to follow me on Twitter, and like me on Facebook!

If you enjoyed this post, subscribe below to get to receive new posts by email.

Comments

  1. Great write up on investment clubs. I worked with them quite a bit in a previous job and always thought they were a very interesting concept. I completely agree that finding the right group of people is huge as you want to make sure everyone has the same mindset going into the venture.

    • Thanks for stopping by John! They really are an interesting concept and provide some outstanding opportunities for people to learn and grow together as investors. Mindset and priority level are very much the most important criteria for good members.

  2. I don’t think you are defining what a “solid group of individuals” means. Those in my group (which I am having problems with) are solid guys. Half were in my wedding party and all were at least at my wedding – solid is one thing they are. I think it more has to do with the club holding absolutely NO priority in their life.

    • Evan, thanks for stopping by and commenting. I apologize for not being more specific with my “solid” group, and will actually modify the post to better represent my intent. By all means the most important thing is people who prioritize investing and have the drive to do it collectively as a group.

  3. That’s an interesting idea. I could probably start one with a good friend of mine who is interested in investing as well…

    • The nice thing with investment clubs is although the recommended size is 8-15 or so, you don’t have to have that many people in order for it to work. Thanks for stopping by!

  4. Compounding Income says:

    Interesting read. Joining an investment club never occured to me. Finding like minded individuals would be tough I think. That and I move every 1-3 years. None the less, very interesting!

    This might be something I could bring up with my dad. He’s more of a mutual fund investor though.

    Cheers!

    • In today’s world, I don’t believe that investment clubs are geographically limited. In my club, a couple of us, myself included, have moved several times over the last five years. Given that fact, we only meet in person about once per year as a complete group, with the rest of our communication being done digitally. Thanks for stopping by CI!

  5. As far as me, you didn’t scare me at all :) actually you deepened my interest in knowing more, so I am really looking forward to read the other articles and hopefully have a discussion. The biggest advantage of a club I see the learning path. That’s why I incline to the first type of investing club rather than combining money and making investments together unless you really have like minded people in your group. But, that said, if you find like minded people I am happy to join such club. Btw, are you accepting new members :) ?

    • I think the learning is always to be valued when participating in an investment club, and has been something that I personally have benefited from. I will get into it in later posts, but one of the financial benefits to investing with a club is taking advantage of the additional capital, diversification, and compounding.

      Unfortunately no, my club is not accepting new members at this time! Sorry! :)

Trackbacks

  1. […] at other money-related topics such as the process I went through to refinance my underwater rental, how to start an investment club series, finding the right job and turning down a 30% […]

Leave a Reply