Stock investment clubs offer many benefits, such as investment education, a way to pool your money and earn profits, mutual support in practicing sound investment principles, and camaraderie with friends and family.
Many people understand what a typical stock investment club is: A legal entity such as a limited liability partnership that pools the money of club members who invest the proceeds in common stocks. Before starting or joining an investment club, however, you should understand how you and your fellow club members can benefit from operating a club.
Investment Education Through Investment Clubs
A vast majority of stock investment club members are new to investing. Together, they learn while they earn. What’s more, they learn from one another. An organization also has weight that an individual does not to obtain the services of guest speakers, arrange field trips to corporations and gather specialized research information such as stock analyst reports, with the ultimate benefit of making more knowledgeable investment decisions.
Making Profitable Investments as a Legal Entity
Being in it for the money to the exclusion of all else probably won’t make you a happy club camper. It isn’t the only reason to join. But let’s get real — it’s certainly one of the top three! As discussed in How to Start an Investment Club
, you'll want to form a legal partnership to do this.
Camaraderie With Fellow Club Members
Getting together monthly with family, old and new friends, and coworkers makes for a pleasant couple of hours away from the daily grind. BetterInvesting (formerly the National Association of Investors Corporation) has found that most enduring clubs are those that successfully mix pleasure with business.
Benefit From Dollar-Cost Averaging (Investing Regularly)
Stock investment clubs also support one of BetterInvesting’s principles, that of investing regularly. Having a monthly meeting prompts members to invest a consistent amount every month, no matter what the market is doing. Can you find $30-$50 or so every month? Granted, many of us may have to think about that some months. Instead, think about this: Can you save $30 every month from somewhere else? One less dinner out? Borrow a couple of books from the library instead of buying them new? You get the idea.
You’ll find that kicking in that monthly contribution will soon seem as habitual as paying the phone bill, and a lot less painful.
Pooling Your Money as You Share Ideas and Workload
There’s also some buying power associated with pooling your investments. Brokerage commissions might be just a few dollars a trade nowadays, but if you have only $25, $30, or $50 to invest at one time in a stock, the commissions from even deep-discount Internet brokerages will eat you up. It’s a bit like one of the advantages of owning a mutual fund: the ability to own dozens or even hundreds of stocks without the commissions associated with owning them separately. Combine your $30 with $30 from a dozen friends, and over the long term you could save some serious money on commissions.
Another advantage is that the stock investment club structure affords a division of labor in researching and following investments. Are you prepared to spend the kind of time it takes to do the kind of research all by yourself that a club can take on as a group? With, say, 11 other members, you may have to make only one stock presentation a year. The group structure of an investment club and the operations requirements you all agree to provide a positive incentive to pull your own weight. And you get to be the beneficiary of all their work — which you can apply to holdings in your personal portfolio.
If you're interested in learning more about starting and operating a stock investment club, check out BetterInvesting's free resources for clubs
Support System for Sound Investing Principles
A final benefit is that a club provides support for important investment concepts in both good and bad markets. During difficult markets it’s human nature to throw in the towel in investing, but that has historically been the best time to buy stocks. Like having lots of friends with flashlights to help find a lost object in the dark, you’re also not alone out there searching through the mysterious shadows of stock selection.
Jon Katz is an NYT Bestselling author, former television producer and dog lover. He is the writer of BetterInvesting’s Investment Club Operations Handbook. He has captured America's attention with his compelling work on dogs and rural living. His talent reaches through all forms of media including novels, documentaries, online content and print.