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Don’t get me started on “equal ownership” in an investment club. Balderdash — there’s no such thing!
But time and time again I hear from clubs that theirs is an “equal ownership club.” What these clubs mean is that they wish every member owned the exact same number of shares, since that would make things so easy (in their minds, that is).
But in truth, club accounting software handles unequal ownership just fine, thank you very much, and these clubs soon learn that “equal ownership” is anything but as soon as one member misses a meeting, or forgets a checkbook, or wishes to withdraw some of their funds. Then “equality” immediately disintegrates. The larger problem is how to bring in new members. These clubs could require a new member to contribute the same dollar amount as all the other “equal” members. But that initial investment would purchase units at the current valuation price, not the average price at which the founding members have paid over time.
There are so many benefits to “unequal ownership” in a club, with so few relative drawbacks, that it’s not worth hashing over any further. But if you still aren’t convinced, you’ll be soon enough if you insist on trying to run a club on an “equal ownership” basis.
Douglas is ICLUBcentral's product manager, helping develop the company's programs including Toolkit 6, myICLUB.com, and the Investor Advisory Service. He is also the author of several investing books, including The Pocket Idiot's Guide to Direct Stock Investing, The Complete Idiot's Guide to Online Investing, The Armchair Millionaire, and Investment Clubs for Dummies.