As many Americans plunge deeper into debt, some are looking for ways to educate themselves about investing and at the same time make some money. There may be no better way to achieve both goals than to gather friends and relatives and set up an investment club.
National statistics regarding savings and investing reveal a grim picture for the level of wealth building in the United States. In fact, according to the Bureau of Economic Analysis, the personal savings rate is negative -- meaning we are spending more money than we are saving. Additionally, only 49.7 percent of American families had a retirement account in 2004. However, the silver lining in this picture is a growing interest in investment clubs, especially over the last three years as stock market indexes have been steadily on the rise.
Today there are more than 35,000 investment clubs nationwide. Belonging to an investment club is not only a good way to educate yourself about investing, but it may actually result in higher investment returns. According to Consumer Reports, over the past 10 years investment clubs have equaled or outperformed the Standard & Poor's 500 index 80 percent of the time on average.
What Are Investment Clubs? How Do They Work?
An investment club is a group of people, usually 10 to 20 members, who pool their money together to make joint investments in the stock market. While the monthly contribution amount will vary club by club, the average is $84 per member, according to BetterInvesting, a nonprofit investment education organization that offers instructions on starting investment clubs.
Generally, investment clubs hold monthly meetings during which one or two people present a formal research report on a single stock or mutual fund for the club to consider. To move forward with an investment, members of the club vote. Usually, at least two-thirds of a club's members need to be present to vote on an investment, and a vote of 50 percent or more results in a "yes" for the investment.
What Are the Benefits of Investment Clubs?
One of the biggest benefits of an investment club is dollar-cost averaging, which is the practice of consistently investing money over time regardless of market conditions, thereby reducing your risk.
Additional benefits include:
What Is the Best Way to Set Up a Club?
If you are interested in starting an investment club, you are probably not alone, so start networking with friends, family and colleagues to determine who might share a similar interest. Your goal should be to gather a group of at least six people but no more than 20. If your group is too small, you may not have enough money to pool together each month for a diverse set of investments. If the group is too big, you may have trouble reaching consensus regarding investment options.
Once you have a good group, get together for a preliminary meeting to discuss your goals, investment interests and guidelines for how the club will be run. Factors to consider include monthly contribution amount; meeting frequency and format; club officers and responsibilities; club name..