How To Start An Investment Club And Make Money From It

The idea, that you’re an average of the people you surround yourself with, holds true for all facets of life, including investment. Your social capital has a way of rubbing off on your economic capital. Hence, the need to belong to an investment club or create one by yourself especially in our world where investment is seen as a luxury and not a lifestyle.

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What Is An Investment Club?

An investment club is a self-managed group of people who pool their money to invest together. In as much as the primary purpose of an investment club is to make as much money as possible, they are also a great way for investors to network, share ideas and learn about the market from each other.

One great thing about an investment club is that it mitigates the risk of financial losses in a great way. Suppose the club makes a bad investment decision, the risk is shared equally and all party gets a fair share. 

Moreover, think about the number of times you have had to bite your finger at the disappointment of passing up a huge investment opportunity for which you were financially ill-prepared to take advantage of? Obviously, an investment club would have just been the best bet to seize such opportunities. You could have pooled funds from members of the club and channeled them to such investments.

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What To Consider When Setting Up An Investment Club

Let’s dive deeper to understand how to start an investment club. In setting up an investment club you need to keep abreast with the following:

1.) There Is A Thin Line Between Not Enough And Too Much.

To get the best out of an investment club, you have to assemble appropriately, a sizable group of value-focused individuals with a common goal.

To get the best out of your investment club, membership should be between 5 and 20. The club should comprise of people within your tax bracket or even beyond; from your friends, neighbours, colleagues, church members, or relatives, who have diverse interests and experiences.

However, one of the banes of having a group that is too small is that you may not accumulate enough money to invest effectively. More so, too many people might be a case of having too many chiefs, but not enough Indians.

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2.) Lay A Solid Foundation

Build your investment club on a right and solid foundation, by setting up a proper structure from the start. Your club should not be a platform where anything goes. Therefore, put systems and structures in place.

Formalize all your dealings with members, irrespective of the relationship you share with each member. More so, the investment club must be a limited liability company or a legal partnership, which is the most common structure. Simply, it should be a formal organization with members who are saddled with the responsibility of club duties and policies. 

When? Where? And, how often the group will meet should be taken into consideration. Also, initial membership contributions and other dues should be clearly stated and signed into the constitution. In addition, there should also be guiding policies and requirements that new members must fulfill before joining the club. Rules on existing as well as for the liquidation of investments, distributions, divesting from the club, and investment plans should be clearly outlined. 

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3.) Similar Investment Philosophy And Ideology

It is very important not to throw caution to the wind when setting up your investment club. Stay true to your investment philosophy and ensure your interest aligns with members. If you are a conservative investor, make sure your members are also conservative investors. Have a common investment philosophy and stay true to it.

However, if you’re an aggressive investor, build club membership with other aggressive investors, to have a balanced philosophy. These moves help in making sure your investment club is frictionless to its barest minimum.

Members who are more aggressive short-term investors and wish to invest in high-risk stocks may not partner well with the more conservative members who would rather wait to benefit from long-term capital appreciation. The latter is more comfortable with blue-chip stocks. Always remember that birds of the same feather find it easy to flock together. 

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4.) “Tell Me and I Forget; Teach Me and I May Remember; Involve Me and I Learn”

This is one of the major objectives of an investment club as it shouldn’t revolve around a few persons. The club operations should be an inclusive system; where every party’s involvement and input are put into consideration before a consensus is reached. This style builds trust and helps in building the investment muscles of each and every member. 

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Long Term Benefits Of An Investment Club

If you are interested in investing but don’t have the drive and motivation or even the expertise, you might want to consider joining one or starting yours. 

The pool of money not only create better investment opportunities, but it helps members save on transaction costs by sharing the costs and fees associated with buying and selling stocks and other asset class as a group.

The idea of an ideal investment club can be a good channel for reaching your financial independence goal. When you pull resources together to finance a project, you wouldn’t need to go through the hassle of dealing with loan repayments, displeased shareholders, greedy creditors, and other bedeviling issues.

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Meanwhile, investment clubs can grow to larger scales and to full-fledged financial institutions. The likes of the Paris club and London club – a private group of creditor banks that also loan monies to countries and other banks, are the highest forms of investment clubs in the world today. 

Take a baby step towards your investment goal by starting an investment club or joining an already running club today.

Just Start! 

By the way, have you ever set up an investment club or being a member of any, prior to this article? Let us know in the comment section below.

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