A Few Words of Caution Regarding Investment
Clubs
If you have researched some information
about investment clubs and are considering either joining one
or creating one for your community, we do have some words of
caution for you. Unfortunately, the world is not a
friendly place, and you may not know the people with whom you
may be grouping as well as you think you do. There are
some things that you will want to keep from doing all together
- and some unsavory sorts of people that you will want to
avoid.
Incorrect Tax Filing
If you don't file your taxes on time, as either
a company or as a limited partnership, you may well get
into some serious trouble with the IRS and with the
Securities and Exchange Commission. This you
already know. However, you should be cautious about
a certain few criteria that will force you to register
with the SEC, even if your books are completely and
truthfully presented on an annual basis.
It isn't necessarily a bad thing to have to
register with the Securities and Exchange
Commission. If you have more than $25 million of
assets under your management, or if you invest in certain
securities, or if you are successful enough to be offered
as a public company (that is, if it is listed on the
stock exchange as a company in which other people can
invest), you will have to register with the SEC and
present your books and your company's assets management
strategy for the following year in the form of a dialogue
to the Commission.
More than likely, your investment club won't
have to worry overly much about this. According to
statistics on the NAIC website, the average investment
club has $87,600 in its portfolio, and its members make a
little over $110,000 annually. Most hold
post-graduate degrees and are relatively
successful.
Unfortunately, you may have to deal with the
darkest side of investment clubs...
Non-Participation
After a club has been established for a while,
some of the individuals involved may be inclined to stop
showing up, which puts the rest of you at a
disadvantage. Each member of an investment club is
expected to put forth effort enough to research stocks
and other financial choices so as to not land the group's
finances into hot water.
Sometimes, members will pay their dues late or
not at all. While sometimes this is allowed for
mitigating circumstances, some people will take advantage
of clubs who allow them to do this consistently.
These unscrupulous investment club members place the
group at risk of utter failure, all the while straining
relationships. Financial losses can result in
in-fighting, which may potentially damage
friendships.
Choose wisely when you join an investment club,
and keep a close eye on your group's tax practices.
After all, if everyone is personally responsible, there
will (hopefully) be no secrets amongst your investment
club and therefore no risk of the above!
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