Simply put, an investment club is a group of people who pool resources to make investments. Each member may or may not actively participate in investment decisions. Together, you can all search for investment opportunities, analyse them and make uniformed decisions. Both amateurs and professionals can form investment clubs.
Benefits of being in an investment club includes:
- You share profits together which denotes that you also share risks and losses together;
- You earn more with the power of many. You can pool resources to take hold of opportunities an individual may not be able to finance;
- There’s a financial commitment which means it creates that discipline to set aside an amount for investment periodically;
- You have a good opportunity to learn from others’ knowledge and experience.
As fun as this sounds, money matters need to be handled wisely so you wouldn’t damage good friendships in the process. Therefore, there are major factors that should be in place if you are starting or joining an investment club. These includes:
- Like-mindedness of members- You should be in an investment club with members that have similar investment interests and objectives.
- Organizational Structure- What is the financial commitment structure? Is everyone responsible for making investment decisions? Who oversees collections? How are records kept? Meeting times? All these should be clearly stated out. A good organizational structure should be in place which should also state out procedures for admitting new members or liquidating investments.
- Philosophy- The club should clearly state out goals and objectives guiding its activities.
- Legal structure- Though an investment club may start unregistered because of its informal structure, at a future date, it is advisable that an investment club is registered with the Corporate Affairs Commission. A partnership is the most common structure.
Finally, very important, the first step to be in an investment club should be a personal review of cashflows. This will enable an individual budget and create an allocation for investment periodically.
To learn more on investment clubs, I recommend the book, Investment Clubs by Tomie Balogun.
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What’s About an Investment Club?