Image by: Courtney Carmody
By Josie Alexander
Women have been stereo-typically afraid of investing their money because society always showed that as “man’s territory”. However, we have been stepping up and doing our part in the investment markets for a long time ladies. If you are fearful of the market, one way to ease your tensions may be to go into it as a group.
Investing can be a daunting process to jump into by yourself. Where do you put your money? How much money do you invest at one time? Diversify? Diversify by how much? This is one of the reasons why some people opt for an investment club.
What is an investment club?
It’s a group of people who get together and pool their money for investment purposes. They meet at scheduled times in order to talk about how their investments are doing, what their best plan of action is, and to consider other options. They vote on their options as a group, gather information, and can also function as social events.
Investment groups have their pros and cons. They are great for learning about markets (and you get to do it as a group). On the downside, they also have a bad reputation for not functioning well as a whole. However, that also depends on the leadership in the group and how well everyone works together. Remember that when money is involved, discussions can get heated and things can get out of hand if they aren’t dealt with fast.
If the thought of an investment group has piqued your interest, consider these 6 tips to keep in mind when you begin to form and run your profitable and fun investment club.
“Believe in yourself – and remember the proverbial glass ceiling only exists if you believe it does. Smash through it and go after the success you want.” – Geraldine Barry (president of SJREI Association and publisher of REI Voice Magazine)
1) Bring In the Big Guns
You’re going to be dealing with money. I’ve already mentioned that dollar signs make things much stickier than they need to – that’s why you need to bring in the big guns. At least, the legal ones. Consult a tax adviser about how your group should be legally structured. For example, you’ll need to sign up for an Employer Identification Number (EIN) for your club.
Just like businesses have business plans, marketing strategies, and mission statements, your group should have an investment statement, goals, and policies. Also draw up some membership agreements that members must read and sign before they join your group. Get an attorney and make sure all of those documents are set and see if there are any other forms that need to be written up as well.
2) There Are Different Cliques (Like at Lunch in High School)
There are different types of investment clubs as well. Make sure to keep that in mind when you have an initial meeting to set up your goals. There are three main types although you can always form a group which chooses two of the three to invest in (or even all three if you have enough money among the members).
Stocks, Mutual Funds, and Bonds. These are the vanilla of investment clubs. While they’re not boring, they are the most common. Members meet together and talk about goals. Since most members will be fairly new or uninformed about this type of investing, they can meet with various specialists and investment professionals to get advice and answer questions.
Real Estate. This is the chocolate of investment clubs. They are a little more interesting and not as risky (though that depends on the market). Members benefit from this type of investment by getting money from cash flow (like if they rent out commercial or residential property), appreciation of the land and/or building, tax benefits and instant equity.
Incubators (Business Investment Clubs). This is the strawberry of investment clubs. They are a touch more exotic, riskier than real estate clubs, and can be exciting (depending on what your members decide on). Business investment clubs or incubators purchase businesses that can create equity and cash flow. Franchises are pretty popular among these groups because the namesake is already there. There are higher risks involved when you jump into start-ups and inventions.
3) Roll Call!
Organization is important when it comes to your meetings. A typical schedule of events for a meeting has approximately seven parts to it:
- Roll Call – Official Beginning of the Meeting
- Old Business
- Assessment of the NAV (Net Asset Value)
- Guest Speakers, Presentations, or Research Notes
- Voting (on investment strategies, holding, selling, or other options)
- Other Business (operations, housekeeping, etc.)
- Formal Closing of the Meeting
Don’t forget about the social aspect of the club. It won’t be the forefront or the main purpose of the club but it will be essential to acknowledge this aspect or your meetings will get out of hand and you won’t get to discuss the important items on the docket. Make sure to leave room at the end of the meeting for your members to sit around and discuss whatever they want.
Your meeting should be as inviting and fun as they are profitable and informative. Have the meetings at different members’ houses. Bring food. Consider using a portion of your profits for a yearly trip with the group. Discuss these options at the first meeting and hold a vote to see what your members would prefer.
4) The National Association of Investors Corporation (NAIC)
If you need somewhere to go to for advice or for more information and you haven’t networked in your local financial establishments yet, consider going to NAIC’s website (www.betterinvesting.org) for some tips on how to invest smarter and better. A membership to their program costs about $86 a year, which can be budgeted into your club’s account if you like the 30-day free trial membership.
5) I Trust You About As Far As I Can Throw You…
When you consider potential members, remember that these people will have to be contributing members of the group (literally and figuratively).
Robert Farrington (thecollegeinvestor.com) suggests that you ask these questions to yourself before you invite someone to join the group:
- Do you trust them with your money?
- Do you trust them to pay on time?
- Will they do their own research?
- Will they contribute to conversations?
- Is unorganized and doesn’t keep records?
- Has trouble pulling the trigger – either to buy or sell?
Geraldine Barry (president of SJREI) suggests that you take a close look at your prospective members:
“When a group of people comes together and they have all have different levels of experience – right there you have diversity. Additionally, the leader of the group is responsible to create the content and provide access to experts through guest speakers, content provided at the meetings and market updates for attendees.”
She also urges you to remember to build your team. “Don’t try to do everything yourself. As women, we try to do it all. Learn how to delegate.” Remember that every member of the club is equally invested in this endeavor as you are, that means that they will also want to do work so that they have a hand in the responsibilities that will eventually make them money.
6) Know Your Stuff
Barry also says, “As a leader of an organization it is important that one keeps on top of the trends and does the analysis and this is not something that can be developed overnight.” So do your research. Go to NAIC’s website, read the books, watch the news, talk with investment professionals, etc.
Being the president of an investment club is a lot of work. Consider going into it with a partner and make sure that you go to your local investment firms and setting up appointment to ask questions. In addition to that, consider getting software to get organized. ToolKit 6 is a great tool that you can use in order to keep track of how your stocks are doing. You can even download your stocks’ past ten years of statistics. Club Accounting 3 is another great tool to keep your books in order.
Lastly, remember that not all clubs are built the same. Look and see what makes your club special and cater to your specific needs.