Creating Your Own Investment Club: Part 2

Last time we talked a bit about investment clubs, a bit about their history (remember the Beardstown ladies?) and why they can be helpful to you as you learn about investing in the stock market.

Now I’d like to speak specifically about the how-tos of forming an investment club in case you’re excited about doing so with your own group of ladies (or mixed genders, if you prefer).

I will give you my experience of the process of creating an investment club, although I’d venture to say there are other methods. For example, NAIC (National Association of Investment Clubs) can walk a group through forming their own investment club using the NAIC material. While this structure may be to your liking, I decided against it when forming the clubs I am involved with because I found it too restrictive. But feel free to check out their Web site at www.better-investing.org.

However, for our purposes, let’s say you want to go it on your own. Your first step would be to gather people who want to participate in an investment club. You’re going to have to make some solid decisions as a group in order to proceed.

Once you have the designated number of people participating, choose a name for the group. Then, do a DBA (“doing business as”) through your local newspaper because you want to be sure no other entity is using the name you’re going to use. For example, if you come up with the name “XYZ Investment Club,” you should do the paperwork to assure there is not an already-existing XYZ Investment Club in operation. (I have done this procedure six times; never once did we find another investment club with the chosen name attached to it.)

Once this is cleared, the group needs to meet to decide the following:

  • How often will you meet? (monthly? Bi-monthly?)
  • Will you meet in the morning, afternoon, or evening? (If there are working people, evening may be the best choice. Or you could designate a lunchtime meeting.)
  • Where will you meet? In private homes, at restaurants, at a local church or meeting hall? How much privacy do you require? Will you have snacks and beverages or a meal … and who will be in charge of this aspect of the meeting?
  • How much will you put in each month? I have talked with groups that put in as little as $25 per person per month, while the clubs I helped form all decided on $100 per month per person. (Most investment clubs are probably going to have under 20 members, so $100 a month per member allows you to have a decent amount of money to work with. But determine what works best for everyone, and whatever amount you mutually agree upon, make sure all the potential members can afford this money and agree to it.)
  • Determine who the club officers are going to be? You will need a President to oversee or facilitate the meetings and to act as the agent with the brokerage firm. You should also assign someone to be Vice-President in case the President can’t be at a meeting; someone who can step in easily to the role if need be. You will also need a Treasurer, someone who’s good with the details of collecting the checks from each member and making sure they get to the brokerage firm in a timely manner. (This should be the other person acting as authorized agent to transact buys and sells on the brokerage firm’s Web site.) You could also have a Secretary if you wanted to be official and take minutes of each month’s meeting for the record. My clubs used to do this, but after a few years, we realized the minutes weren’t necessary and “fired” the Secretary! She was very happy to give up her task.
  • Which online brokerage firm will you use? You want an easy-to-navigate, user-friendly brokerage firm. Other factors involved in deciding on the firm might be: check writing privileges (some brokerage firms provide checks for investment clubs, some do not), availability of a local brokerage office (so it is easy to make deposits in person if you wanted to do so), ease with which you can talk to someone on the phone should you have a problem or a question. Some brokerage firms give you direct access to a human being when you call the phone number; others put you on hold until your next birthday. Check them out. Take recommendations from club members as to which brokerage firms they like and use.
  • Pick an accountant who can do the taxes for the club members. An investment club flows through to the individual members’ taxes, but each member will need a government form prepared by the club’s CPA to give to his or her personal accountant.

Next time I’ll take you through an actual meeting of an investment club and discuss the format of the meeting itself.

Until then, happy investing!

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