Investment clubs are groups of individuals who gather at least once a month to enhance their investment acumen. They commit to contributing a set amount of money, which is then collectively invested, often in the stock market. Depending on the members' trading expertise, monthly contributions can be modest, ranging from $20 to $50. The primary purpose of such clubs is to provide an affordable platform for members to learn about stock purchasing. Once members gain sufficient confidence, knowledge, and experience, they usually venture outside the club to build their personal stock portfolios.
Typically, an investment club comprises 10 to 20 members. Each member is expected to bring some knowledge or research about potential stocks to the table. The group then discusses these stocks and decides collectively on the ones to invest in.
One of the crucial points to agree on before considering any particular stock is the club's trading goals philosophy. It's best to establish this early on to prevent disagreements later. For instance, a member in their twenties might prefer to invest in riskier stocks, while someone in their retirement years might opt for stable and slow-growth stocks for safety reasons.
Choosing members with similar goals is usually the best approach. According to the National Association of Investors Corporation, there are over 50,000 investment clubs in operation in the United States. These clubs comprise diverse groups of people with various investment strategies.
I am currently in the process of forming my own investment club, based on the strategies outlined in my eBook, "An Entrepreneur's Approach to Buying & Selling on Wall Street". When I shared some of the information and stock-picking strategies from the book with some friends, they expressed a keen interest in learning more about how I was able to select stocks that yielded such impressive gains.
So, I decided to create an investment club where I could teach them firsthand how this system works. We met at my house one night to discuss the details and iron out a few minor issues before we could begin.
We decided to keep our club small, with seven members, four of whom were already investors with personal brokerage accounts. We agreed on the number of members and decided to focus on the strategies from my eBook. We also decided to make a one-time investment rather than regular monthly contributions.
We chose Charles Schwab as our broker and agreed to invest a one-time $715.00 per member at our second meeting, as they require a minimum of $5,000 to open an account.
We named our club the "Chosen Few Investment Club", and applied for a Federal Tax ID number or EIN# from the IRS. Once we received the number, we chose the club's officers and opened the account under the "Investment Club Account Agreement" with Charles Schwab & Company.
Our investment club is registered with the IRS as a general partnership, and each member will be responsible for their portion of any capital gains tax at the end of the year.
As this is our first official investment club based on the strategies of the eBook, I'll keep you updated on our overall gains and net worth in upcoming issues.
