I Thought I Wanted to Form an Investment Club. (I Don’t.)

Photo credit: Cara Faus, CC BY 2.0.

True confession: I know very little about investing. I think that’s true for many people. I’m not terrible at the money thing; I save and budget and plan for big expenses or travel. I have both a retirement fund and an emergency fund, which is great. But actual knowledge about stocks and bonds and trades and when to sell or buy or hold? I’m not quite sure where to start with all that, and I think it’s time to learn more.

My first idea was to form an investment club with friends. After all, I run with friends, I hike with friends, and I only like to cook when there are other people helping in the kitchen. An investment club would be the same thing, right? I’d be learning about stocks and investing alongside my friends and we’d all keep each other involved and focused. There are thousands of people in investment clubs around the nation, after all. But how would I even start an investment club?

I did a little research to find out. Along the way, I realized that an investment club wasn’t for me, at least not right now. But maybe it would be great for you? Here’s what I learned. (And I think this is obvious, but just in case: I’m not a financial professional. Please learn from my story, but don’t take it as professional advice. Of any kind.)

Choose the members

While this might seem like an obvious step, choosing the right people for your investment club will do a lot towards determining your success. It’s important that everyone is, well, equally invested, both in terms of money and ability to put effort into the club. (This is also where I realized I would be the dreaded “dead weight” everyone complains about. I’m not that interested in researching investments, and once I was honest with myself, I realized that was unlikely to change.)

Complete the documentation

On the legal side, your club will have to form either a general partnership or an LLC. You’ll also need to register for an EIN and sign a formal partnership agreement. Many clubs have written documentation outlining the organization of the club and clarifying “who does what.” If one person will be responsible for research and another for calling the broker or implementing trades, put that in writing. Finally, you’ll need to open a group bank account and brokerage account(s)—and you’ll need to determine who will be responsible for the account management.

Decide how the club will make investment decisions

Does everyone have to agree for club funds to be used for investment? That can be great in a small club, but challenging if you plan to grow. How about dividends or bonuses? Does your club want to plan to pay these out as the investments grow, use them for club expenses, or allow that money to continue to grow until members retire? There aren’t really any wrong or right answers, but you’re going to need good communication and agreement if your club is going to succeed.

Decide how the club will communicate

Successful clubs learn to work well together. Some groups, like FTTS (“From Tennis To Stocks,” a 30-year-long investment group, that started—you guessed it—with tennis) have in-person meetings; other groups connect over social media or email. Most groups have an educational component, whether that is bringing in a professional to talk to an established group, or an informal discussion of when to buy or sell. The important part here is that all members are involved in the education and decision-making.

Once you have your group, your legal framework, your organization plan and your rules about decision-making, it’s time to start investing. It’s okay to make changes as you go along, whether that means changing your broker (or deciding to go without a broker), or changing your investment parameters as the amount of money in the account changes.

Is an investment club for you?

If you enjoy learning about investing and enjoy working with other people, an investment club could be a great option. Investment clubs allow people to pool funds, which can open up new markets and spreads the relative risk and costs among the group. Most club members also share the workload, learn from each other, and have a good time doing it.

If, however, you struggle making financial decisions (so much so that it will affect others’ ability to jump on investments) or just aren’t that motivated, (ahem….me) you might want to wait to join a club. Also, if communication and compromise aren’t your thing, you might take an investment loss out on your friends, even if you all agreed on the investment. If the idea of giving up sole control of your finances makes you overly nervous, think twice about joining an investment club.

For me, I realized that honestly, I’m just not that into it right now. I don’t really have the desire to make those kinds of group decisions, particularly ones that make me responsible for other people’s money. But I’d certainly be open to an investment club in the future, if the right group of people and circumstances came along.

Beth Swanson is a freelance writer from North Bend, WA. She writes about living an active life with a hidden disability. She is not quiet. Follow her blog, My Crazy Messy Amazing Life, or visit her on Twitter @crazymessyamaze.

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