Investment clubs have been around for several decades and are simply groups of people who get together and pool their money to invest. While the primary motivation is to make as much money as possible, clubs are also a great way for investors to share ideas and learn about the market from each other. Investment clubs can be found in most municipalities and regions, and have existed for decades as a way for people with limited funds to contribute to and participate in larger investments, as well as to gain first-hand experience and education. Investment clubs are simply a group of people pooling their money to make joint investments, usually in stocks or bonds.
While their primary motivation is to make as much money as possible, clubs are also a great way for investors to share ideas and learn about the market. I believe that investment clubs can also help to avoid making mistakes out of fear of the stock market. If the market crashes and you invest on your own, you may be tempted to withdraw your money. But club members can remind you that you are investing for the long term and that markets go up and down, but generally rise historically.
An investment club is only as good as its members. If there are no experienced investors in the group, it is unlikely to succeed. The performance of the club will also depend on the active participation of all members of the group in investment decisions. There are several reasons why you would want to start an investment club.
The main one is community and education. With an investment club, you will work with others to identify investment ideas and probably learn a thing or two. Just as individual investors vary widely in their investment style, such as value investing, income share strategies or GARP, so do investment clubs. The prospectus contains this and other information about the ETF and should be read carefully before investing.
It is important that all investment clubs have a clearly defined investment style, ideally with some kind of quantifiable rules or constraints on the club's investment portfolio. Because we're all in this together, Ionnie McNeill, director of Better Investing, the website of the National Association of Investors, which is the national non-profit headquarters for investment clubs, told Krueger. However, if the idea of being surrounded by a group of like-minded people eager to learn more about investing excites you, joining an investment club may be a good option for you. Finding a suitable brokerage firm is a good idea, as different brokers often have unique offerings for investment clubs.
Arguably, it is more important for investment clubs to provide members with the education and experience to help them determine why the club's portfolio has grown, rather than simply watching their net worth grow. Traditional investment clubs buy and sell investment stocks, mutual funds, real estate investment trusts, etc. as a group. In addition, for the benefit of members, it can also be useful for a new investment club to implement standardised criteria for reviewing a stock for possible purchase.
If you have ever wanted to set up your own investment fund, but thought it was out of reach, an investment club might be the next option. Investment clubs are the subject of the new episode of the Friends Talk Money podcast I co-host with author and personal finance columnist Terry Savage and Wealthramp founder and MoneyTrack public television host Pam Krueger. For example, one club may focus on investing in stocks, while another may focus more on income. However, in this case, market-beating returns do not contain all the value a member receives from a well-run investment club.
Investment clubs are not for everyone: some like to take the lone wolf route and blaze their own trail, educating themselves with their own methods. An investment club is a group of like-minded people who pool their money and invest it according to agreed principles.