Investment clubs

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3. Why join an investment club?

Take one step back, and this question actually subdivides into:

1. Why invest in stocks and shares?
2. Why do so through an investment club?

The answer to the first is outside the scope of this course - suffice it to say that in the past shares have provided better overall returns for investors than bank deposits or bonds, and that most observers believe they will outperform in the future too. Click here for a graphic illustration of the relative return of shares compared to gilts and RPI.

The answer to the second depends on your personal circumstances and viewpoint. People join investment clubs for all sorts of reasons, but the main ones are:

1. Social

   Membership of a club turns a solitary pursuit into a sociable one. Meetings take place at members' homes, in restaurants or pubs, and the conversation is vibrant and convivial. It's more fun than agonising over decisions all by yourself.

2. Education

   Few people have had any formal education in picking stocks and running a share portfolio. Pooling knowledge, brainstorming ideas, and subjecting decisions to the scrutiny of other club members is one of the best ways to improve your investing expertise.

3. Diversification

   A cardinal principle of investing is 'Don't hold all your eggs in one basket'. Fifteen shares is generally reckoned to be sufficient to be properly diversified, but if you have limited funds that can spread you a bit thinly. Putting your money in an investment club is one way round this. Your money is pooled with others, and the club can invest meaningful amounts in a properly diversified portfolio.

Of course, you can get these benefits without joining a club. On the diversification issue, for instance, unit trusts and OEICs exist specifically for that purpose.

But investment clubs are unique in providing all these benefits in one go. And whereas a unit trust will charge you 5-6% of your capital when you buy units, and take 1-2% of the value of your fund each year as a management charge, with an investment club there are no charges as no one is paid for any work they do. This gives clubs an important advantage.

1. What is an investment club? 2. A simple explanation of how it works 3. Why join an investment club? 4. Deciding on your aims 5. Joining an existing club 6. Preparing to launch a new investment club 7. The draft constitution and rules 8. Drafting the investment strategy 9. Example of an investment strategy 10. Attracting members to your club 11. Preparing for the inaugural meeting 12. The inaugural meeting - appointment of officers 13. The inaugural meeting - key decisions 14. Things to do after the inaugural meeting 15. Starting the processes 16. Running the first meeting 17. Regular meetings - the key to success 18. The cash account 19. The capital account 20. The asset register 21. The annual general meeting 22. Tax 23. Performance measurement 24. Dealing with a member leaving 25. Conclusion

• ProShare Investment Clubs Looseleaf Manual
• The Motley Fool Guide to Investment Clubs
• The Company of Successful Investors