So, you’ve decided that you might be interested in joining an investment club. Perhaps you heard about it at work…Perhaps you heard about it at class. Universities and workplaces are what many investment club members have in common. In some cases, graduate schools even advertise their investment clubs as extracurricular activities. But you just want to know, what is an investment club?
An investment club (sometimes called a stock club) is comprised of individuals who pool funds in order to make investments that would otherwise be beyond their means. That is, they buy stocks – and in most cases, they research these stocks well.
Considered a small business for purposes of tax returns, investment clubs are generally social groups of like-minded people who want to see their money grow. If you are interested in the stock market – and if you want to gather information on a particular set of stocks – then joining an investment club may be right for you.
Usually, investment clubs are run in a democratic fashion. Members, as a collective, elect their officers (which usually consist of a president or spokesperson, a treasurer, and so forth). They also vote on stocks, bonds or securities – which they want to purchase, how many they want to buy, whether or not they want to sell, whether or not the interest rate is conducive to a comfortable amount of growth.
Investment club officers delegate who researches which stocks. Research can consist of any number of different methods: stock market profiling, looking at or visiting the individual companies (if they’re local) in which you may be interested in investing, and even historical comparisons. Stock prices are a driving factor in the purchase of individual shares…as are growth futures.
In order to be considered active and not a security (securities must register with the SEC), an investment club’s membership must all participate in the purchase and sell-off of stocks. Members usually contribute capital (cold, hard cash) on a regular basis. Whether or not this is weekly, biweekly, monthly, bimonthly, or so forth, depends upon the individual club. Some clubs require members to contribute $25 a week, for instance – some, $150 a month.
Before you join an investment club, you should definitely take a look at your finances. If you have any free capital that is not used for bills, college payments, and so on, you might consider investing. However, if you are in severe debt, you probably shouldn’t join an investment club, as the odds are you will lose money before you begin to gain any.
Our best advice: do not invest beyond your means!