Money Talks: Investment Clubs


A Chicago club celebrated its second anniversary with $75,00 in its accounts, including blue-chip stocks like Microsoft and Sara Lee.

Mention words like stocks, bonds and dividends to some people end watch as dazed looks take hold of their faces. For these folks, the ins-and-outs of investing is akin to some kind of special magic to which only an elite few have the knowledge to produce results. But that myth is shattered daily by the growing number of people joining investment clubs--people with no formal knowledge of investing.

"Investment clubs are just as appropriate for persons with no knowledge of investing as for those with a lot of expertise," says Dr. Pearlena Wallace, author of The Free Money Book: Hoar to Find Money Just About Everywhere. "The whole purpose of the club is for you to learn as you go." Investment clubs have become big business in the last decade. Their popularity, experts say, is due in part to the relative ease with which they can be started. All it takes is a group of people who agree to invest a set sum, even as little as $25, each month. With research and regular deposits, these investments can yield impressive returns.

The first step in starting a club is to find a committed group of people. Find recruits among friends, family, co-workers or organization members. But be wary of starting a club of all close friends or relatives, experts say. Mixing money and personal relationships can end up a brew for trouble. Most clubs keep membership numbers between 10 to 25 people to limit confusion. Experts caution that members of a new club should share a common philosophy about investing. An investment club is not like a savings account: members will share profits as well as the losses.

Many clubs stash some of their money in growth stocks--entities that can produce good returns but also entail a degree of risk. Experts say diversity is key to success in the market. Along with stocks, consider investments in real estate, bonds and mutual funds. When you convene your meeting, choose a name for your club, set meeting times--usually at least once a month--and discuss the rules. You should also elect officers and make sure everyone understands the club's goals. Set the dues or monthly amount that each member is expected to contribute and penalties--perhaps $5 to $10--if someone pays late. It may seem strict, but an investment club is a business.

"Sometimes people confuse it with a social club, but it's a club where you learn the basics of investing and have an opportunity to invest," says Wallace, owner of Wallace and Associates, a financial planning and investment consulting firm. …

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