Tips on Starting an Investment Club

An investment club can be an entertaining way to buy and sell stock. Members of the club learn about different companies, industries and investing. Plus the monthly club meetings provide a social element to the investing process.

Below are some recommendations to help you start and investment club.

The first step is to determine the interest level. Discuss the idea of an investment club with friends, family, co-workers and other associates to determine if anyone is interested in starting a club.

Try to recruit members with similar investment goals. It is probably better to recruit members that have an interest in long term investing.  Investment clubs are not usually a get rich quick scheme.

Having members with a variety of expertise, interest and life experiences can benefit your club.  Having input from a diverse group may be helpful when making investment decisions.

A membership of 10 to 20 investors should be a good size for an investment club. Too few members will result in a lack of funds to invest.  Input from too many investors may lead the club astray of their investment objective.

After recruiting a base of members, you should arrange a preliminary meeting. During this meeting and maybe the next couple of meetings determine a name for the club, develop a mission statement, decide on the type of entity and write an operating agreement.

The name of the club can be almost anything. It would probably be wise to check with your Secretary of State to determine if there are restrictions or requirements regarding the naming of an investment club.

The mission statement should be a brief explanation of the purpose of the investment club and include the investment goals.

The entity type can be a simple partnership, limited liability partnership or corporation. You should contact the Secretary of State Office in your state to determine the types of forms, licenses and other requirements for each type of entity. You may even consider talking to a CPA and/or attorney. An even better idea is to invite a CPA and attorney to join your club.

You will need a federal tax identification number (EIN) for the club. A CPA can help you with this.

The operating agreement is a very important document. The operating agreement should include all of the details on how the club is to operate. It should be a written agreement and signed by every member of the investment club.

 As a minimum the operating agreement should address the following areas:

Define when and how often the club will meet. Clubs typically meet at least monthly.

There should be a maximum number of members. Twenty is probably a good number as a maximum.

Agree on the initial member contribution amount and the monthly member contribution requirements. For example: The agreement may require an initial buy in amount of $500.00. The monthly contribution amount should be reasonable to encourage people to join. A range of $50.00 to $200.00 for monthly contributions is recommended.

The agreement should include procedures to follow when electing club officers. At a minimum, the club should have a president, vice president, finance officer/treasurer, secretary and education officer.

 The president sets meetings, presides over them and plans activities.

The vice president fills in when needed and may also fill the education officer role.

The finance officer/treasurer buys/sells investments, keeps records of the club's holdings, keeps records of each member's share (calculates equivalent units of ownership), prepares financial statements for monthly meetings (income statement, balance sheet, members' statement of ownership/equivalent units), maintains a club checking account. The formula used to calculate equivalent units should be explained in the operating agreement.

The secretary keeps minutes of the meetings, distributes minutes to club members and sends meeting reminders to club members.

The education officer is responsible for the education program including arranging guest speakers, field trips and presentations.

The agreement should cover procedures to select and engage a brokerage firm. The club can choose to use one or a combination of the following: full service broker, discount broker or online broker.

The agreement should include how the club will handle payouts, divestures and dissolutions.

The agreement should cover each member's responsibilities regarding meeting attendance, participation in investment research and meeting participation and making timely contributions. The agreement should cover the consequences of a member's failure to meet these obligations including divesture.

 Once an operating agreement has been developed and signed by all members, it will be time to conduct investment meetings.

Meetings should be held at least monthly on or near the same time each month.

There should be a meeting agenda distributed to all members in attendance.

There should be a reading of the minutes from the previous meeting and a review of the agenda should be given.

The meeting should include a review of the club financials including the income statement, balance sheet, each member's equity balance and the amount of cash on hand.

The meeting should include a presentation of investment options. Members should vote on whether the club should buy, sell or perform additional research.

Close every meeting with a date, time and location for the next meeting.

Hopefully, you found this information on starting an investment club useful. Keep in mind that these suggestions are not all-inclusive. You may take these suggestions and modify them to meet your needs.