Investment clubs are currently very popular in the UK. There are over 12,000 of them and this number is growing everyday. So what are these investment clubs and how do they work?
An investment club is a group of individuals who have decided to put together their capital and other resources with the purpose investing for a profit. These groups vary in the number but most consist of ten to twenty individuals.
You can either start your own club with friends or join an already existing group. The benefits of joining a club instead of initiating one is avoiding the learning curve needed to make a profit in this venture.
The popularity of investment clubs is fueled by above average returns and a democratic system of choosing stocks or shares by the members.The best performing investment clubs in the UK tend to be discrete and you have to know someone before you can join. To make this task more simpler you can can join online communities such as ProShare Clubs.
You need to know what you are looking to gain in an investment club. Some people rate trust as a big issue when dealing with finances, in this case you might want to partner with those you are already familiar with. If you regard rate of return as the most important factor, then you will need to carefully study the club’s previous performance. Below are some of the points you can apply to inspect the viability of an investment club.
- Age of the club. The time that a club has been together tells a lot about it. You are able to check how many of the original members are still in the club. This will indicate the members’ turnover rate of the investment club. The lower the rate, the higher the satisfaction of the members, which is a positive sign.
- Previous performance. The club’s previous performance, although not a guarantee of future earnings, is a very good indicator. If the club has been in existence for a period of more than two years, you might want to ignore the results of the first year. Don’t let the bad results from the first year dissuade you from joining an otherwise good performing organization.
- Good governance. Any good investment club in the world is a democratic institution. Decision making needs to be made by every member in the club. Investment clubs that have domineering tendencies rarely make it past two years.
- Club fees. It is no use trying to join an investment club if the fees are beyond your means. You will forever be over cautious, and you will cost other members to lose out on opportunities. The golden rule in investments is never to invest what you cannot afford to lose.
- Similar investment goals. It is important that the club you are looking to join has the same outlook on investment as you do. Having conflicting goals has been the bane of many a club. Harmony needs to prevail in an investment club if best results are to be achieved.
- Familiarity. For some people joining an investment club is more than just about money. The social aspect of an investment club is just as important as its profit margins. There are times when the group has to put a lot of trust (and money) on one or a few members’ gut feel about an investment. Also, some clubs have year end celebrations where they usually go out together (sometimes with their families) on holiday.
- Members experiences. The level of members experience is critical for the success of the club. A lot of research is needed to justify the choice of a stock and the experience of some members can help with this issue.
- Proper registration and compliance. With the advent legislation to counteract money-laundering and tax-evasion issues, a shabbily organized club can end up on the wrong side of the law. You certainly do not want find yourself in a situation whereby all your assets are frozen.
Other points you need to contemplate are the membership perks, the flexibility of the club’s constitution. Once you have found an investment club that rates well on these aspects, then you know that you have joined one of the best investment clubs in the UK.