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 By Dan Stringer

As the Social Security Administration flounders into the new millenium the public is realizing that it is they, not the federal government, who will be responsible for their well being in their retirement years. An excellent way in which people can prepare themselves for what is today an average retirement period of 15 years is through the use of an investment club. An investment club is a place for novice and seasoned investors alike to broaden their knowledge of the financial markets. Clubs are generally from twelve to twenty people who share an interest in investing for fun and profit, they are generally set up as a limited partnership which is the easiest and most economical entity to form. They insure that while you may not be a Rockefeller at retirement you will have taken the necessary steps to insure your financial future. They offer priceless opportunities to share information, ideas and strategies, and provide the tools needed to help you make informed market decisions. 

Associate with the Right People

The first step towards starting a club is to research the available information provided by the National Association of Investors Corporation or NAIC. The NAIC is a non-profit, tax-exempt organization whose membership consists of investment clubs and individuals interested in long term financial growth. For a fee they provide sound investment information, education and support, and a proven track record of consistently better than average returns. Their guide “Starting and Running a Profitable Investment Club” has helped thousands of people worldwide attain financial success.

The second step involves selection of club members. When building club membership, the most important aspect is to find members who will enjoy one another’s company. You are embarking on a long-term journey, which may last the rest of your life. Finding people with similar interests or ideologies is an important factor to consider when making that initial invitation.

Find people who realize that they will be in for the long haul. Very few clubs have been successful in using a short term, speculative approach to investing. Generally those who have realized the largest gains are those who have had long-term investment outlooks.

Prospective members should also realize that this is not an invest and forget program. Members need to be prepared to do research, investigate and analyze securities, and make periodic reports. A person who is prepared to make that type commitment to financial study is likely to be the best member.

Meeting for Direction

The first few meetings should be to discuss the potential of starting the club and it should be made clear to attendees that attendance is not a commitment to join. These meetings are primarily to look over different investment philosophies and strategies, to inform potential members of the operation and goals of the potential clubs.

Once you have enough people interested, the next step is to set a date within the next month to put in place a partnership agreement, elect officers, and set up operating details. Monthly meeting times will be discussed and the monthly contribution. Most clubs starting out will have a small, equally balanced, monthly contribution for the first year. After that some members may wish to increase their contribution while others may wish to withdraw.

Forming the Club…Off We Go!

Finding both an accountant and a stockbroker as well as an attorney to set up the partnership agreement is an important decision that should be made at these first few meetings. An attorney practicing general law should have the knowledge to set up a limited partnership, which is the most common type of entity for investment clubs. An accountant will ease the burden of  setting up the books and could be used to maintain the financials of the club. When contacting a brokerage ask if there is someone who handles investment clubs. This person will generally be better versed in handling the needs of your type of investing.

In the first few months, or even years, your club’s financial gains may not perform as expected. DON’T GET DISCOURAGED!!! Look at your club’s investment strategy, talk with your broker, and most importantly look at the market as a whole. If you feel your club has made sound investment decisions and the markets are on a downturn or stagnating don’t worry. The market has continued to increase in value for the past seventy years and all indications are that it will do the same in the next seventy years. Remember it is time in the market, not timing the market, that leads to financial success.

If you would like to experience an awesome week of learning how to invest, check out our YoungBiz Better Investing Camps.