Financially Sound: Join The Club

Become a proactive and informed investor.

by Mary Ellen Garrett

March 9, 2009

I f you've always wanted to learn more about investing in the stock market but have felt intimidated or overwhelmed by the complexities involved, joining an investment club might be just the answer. People often shy away from talking about the market, their portfolios and investment strategies. There is a misconception that you must have an MBA or an Ivy League diploma to have an educated perspective on investment strategy.

An investment club may be a good option, especially for new investors who want to expand their knowledge and confidence in investing within a friendly and social group setting. 

Investment clubs meet regularly - usually monthly - and are typically made up of about 10 to 20 colleagues, friends or neighbors with common financial interests and goals. Each member is required to make monthly contributions to the investment budget. Creating a social and nonthreatening atmosphere can help take the fear out of investment and market discussions. 

Club members are given research assignments and learn what to look for when evaluating a company's stock. They take turns researching various sectors, companies and stocks and report their findings to the group.

Because most people don't have time to study several stocks every month, this collaboration allows members to share each other's research and discuss investing pros and cons with the group. Alternating these "homework assignments" and presenting them to the group helps club members to make informed decisions on how to invest their pooled money. 

Members should agree to actively participate in the club's research responsibilities without just a few doing all the work. As an added resource, many clubs bring in expert guest speakers as part of their educational agenda.

How much money does each member make in the end from the funds pooled by the group? Members make regular contributions with the range of money determined by the group. Each member's individual return is determined by his or her contributions to the pool.

It's best for members to share a similar philosophy and have common investing goals. For example, the desire to make a quick profit will probably not be consistent with an emphasis on learning and growing your money over time.

Clubs that take a buy-and-hold approach to investing in stocks agree to buy stock in solid companies they have researched with the intent of holding it for several years or longer. This way they weather market fluctuations and keep taxes and trading costs to a minimum. Realistically, club members need to be patient because depending on market ups and downs and the economy, it will most likely take a few years to see investments grow appreciably. Members should consider both the club and its investments as a long-term commitment.

The 50-year-old National Association of Investors Corp. provides a wealth of information on investing clubs and manuals, sample agreements and software for setting up and managing clubs as well as conducting research. A formal agreement is needed to protect investors and for the club to be recognized as a legal entity. For more information on NAIC, log onto http://www.betterinvesting.org/public/default.htm.

Although individuals can gain valuable knowledge from an investment club, this does not take the place of a professional financial adviser, who provides financial planning advice to clients on a broad spectrum of financial needs and goals. 

Lastly, but most importantly, members of investment clubs must agree to have fun with the learning experience and keep meetings friendly and cooperative.

---

Mary Ellen Garrett is first vice president-investments, senior financial adviser at Merrill Lynch & Co., Inc.