Investment clubs have become incredibly popular with investors in recent years. In the mid 1990s there were only a few hundred but there are now more than 5,000. The clubs have taken off because people have realised that you can turn investing into fun by teaming up with likeminded investors, whether they are new to shares or experts.
What is an investment club?
What are the advantages?
How can I set up a club?
An investment club is simply a group of people, often work colleagues or friends, who meet regularly and pool small amounts of cash to invest in shares. The first club was set up in the US in 1898 and the first one was set up in the UK in the 1950s.
Joining an investment club is not usually about making a fortune but instead, learning more about investing in a fun environment. Whether you have bought shares in the past or not, you are bound to discover other people have different and successful ways of investing and knowledge you do not possess.
Someone who works as a gym instructor may know a lot about sports and leisure companies while someone who likes shopping will know a lot about retailers. This knowledge should help you pick better companies and reduce the risk of you losing money.
The first step in setting up a club is to find people to join you. Most people set up clubs with friends, work colleagues or family. There is no set minimum number of people you need but Proshare, the non-profit-making company that promotes investment clubs, recommends at least five so you can benefit from a wide range of knowledge and opinions. There is a legal upper limit of 20 people if, like most people, you set up your club as a partnership.
Once you have found enough people you need to arrange a regular meeting. Most people meet once a month, usually in a local pub. You need to elect a chairperson, secretary and treasurer to run the club and appoint nominees, trustees, bankers and stockbrokers. You should also agree on a name early on and sign a constitution.
Remember that being in a club should be fun so you should keep your monthly subscriptions small – a typical amount if £25 a month per member. Most people also wait until they have built up around £500 before they start to invest. This has the added advantage of giving you time to research shares properly too. Make sure you put aside some money for administration and, perhaps, refreshments.
Your club should be set up as a partnership, which is cheaper than forming a limited company and means you do not have to worry about corporation tax. The Inland Revenue is happy with this system and has set up a simple scheme to enable clubs to make tax returns, providing you adhere to guidelines set out in the Proshare Investment Club Manual.
Your club will be covered by the Financial Services Act and there are penalties for breaking its rules so you must make sure you understand your responsibilities. Members of investment clubs are exempt from its provisions providing they only act on their own, or the club's behalf, and there is no payment involved.
Clubs must make sure they do not give advice on investments to other people as this would require you to be authorised by the FSA. This relates to recommending individual company shares rather than giving general investment advice to other clubs Legally, the club's members must have day-to-day control over their investments so make sure it is run democratically.
You can get more help and ideas on how to set up your club from http://www.proshareclubs.co.uk