How to Start an Investment Club?

A stock market investment is daunting to most people who know very little about the risks. One way to ease concerns and bolster your wealth portfolio is to start an investment club. By pooling funds and making investments, you are part of a group of people that can either decrease or increase stock holdings.

Achieving maximum growth typically requires having a balanced portfolio of stocks, mutual funds and equity funds. Not knowing which stocks to buy or when to sell could put a dent in your financial goals. However, beginning this process with a group rather than as a sole investor could put you on the right track.

Organizing the Investment Group

Essentially, to start an investment club, you will need to consider several key factors. First, you will need to organize a group of people with the same interest: to learn about investing and to get a return on investments. Introduce the idea to people you know with similar interests in the stock market. Most investment clubs start out with approximately 10-15 people.

As a group, agree on the common goals. This will help to identify those who might be interested solely for educational purposes, social networking or the serious investor. Members should agree on the financial contribution of each member. Some members might be satisfied with a small monthly contribution, while others might want larger, more aggressive contributions. A minimum of $25 per month is a good place to start.

Develop an Operating Agreement

Once members have agreed on the monthly contribution, you want to write a formal, operating agreement. This document outlines the club's formation and by-laws. The agreement describes how the investment club will conduct monthly meetings and the contribution amount of each member. You will need this agreement before setting up a brokerage account for the club.

The operating agreement should detail when and how often the investment club meets. The roles and responsibilities of each member is also a part of the agreement. For example, the president is responsible for conducting the meetings, the treasurer makes deposits and the secretary will take notes during meetings.

Some members may join the investment club and decide to leave after several months or years. Make sure the agreement details how membership is absolved, i.e. payouts. You may also want to include requirements for new members. Each member should sign the operating agreement.

Monthly Investment Club Meetings

The first investment club meeting might involve appointing roles described in the operating agreement. The club will also want to decide on the brokerage or bank account. Another option is to subscribe to an online investment service.

Subsequent meetings will include a review of the club financials. A report of the gains and losses is provided to each member, including excess cash available for more investments. Investment ideas are presented and the club decides whether to buy more investment products, sell current portfolio holdings or conduct further research before making a final decision.

As a group, all members determine the club's portfolio. However, you want to have at least one designated member as a primary contact for the broker. This person is the voice of the group in terms of buying or selling products.

To keep track of the investment club's financial activities, you may want to tools such as accounting guidelines and financial software. The accounting guidelines educate each member on the legal requirements for investing as a group. Financial software helps with bookkeeping by tracking each member's monthly contribution.

Tax Liability

With an investment club, you also have to consider the tax liability. Generally as an entity, the club is not liable for the taxes on the gain or loss of an investment. Rather, each member is individually responsible for reporting his or her share - whether it was a loss or gain.

Investment Education

You will also want to include plenty of opportunities during meetings and other forms of communication to provide educational information. Most investment clubs are people who are novice investors in the process of learning about investing. Not all members will have the same knowledge base level starting out. Make sure you allow space for questions and discussions.

Member Red Flags

During the initial meetings, you may want to watch for some typical signs from those who are fully committed and those who might not remain in the club long-term. This includes not making timely contributions, inconsistent investment strategies or lacks regular participation.