How To Start A Stock Investment Club

How Investment Clubs Work

Not all investment clubs will have the same structure, but here are some general guidelines for forming and joining an investment club:

• Investment clubs will usually form a legal entity, such as a partnership or limited liability company . This way, the members can be considered joint owners of the entity, and their financial contributions can follow standard accounting rules.
• There’s no real minimum or legal limit for the investment club membership, but one club usually consists of 10 to 20 members.
• The investment club will usually open a brokerage account in the name of the club, as established by the name of the legal entity. Some brokerage firms have certain rules and incentives for investment clubs, so be selective and shop wisely for the right fit.
• To join the investment club, a new member will usually contribute a lump sum, and then pay a set monthly amount, such as $100.
• Members will normally meet periodically, such as once per month, to discuss investment opportunities and which, if any, securities should be bought or sold.
• It can be advantageous for investment clubs to have a stated investment objective or investing style, such as value investing or growth investing. Members can also set up particular screens that securities need to meet before they qualify for purchase. For example, a value strategy might require a low P/E ratio before the investment club purchases it.

The Investment Club Bottom Line

Starting an investment club is a little more complicated than just asking a few friends to pool some money. You are taking risks with your money, and more importantly, other peoples money.

Take the proper steps in making sure your investment club is legally compliant and talk with a local accountant to make sure everything is being done above board.

Socializing For Fun And Profit

Each club sets its own agenda and meeting frequency, but monthly gatherings are common, and meetings typically include the following:

• Collection of dues: Each member contributes a set amount to add to the club’s investment pool.
• Review and discussion of portfolio performance: How far up is the value of the club’s holdings? Which securities are performing well? Is it time to cut underperformers loose?
• Reports on investment research: Members typically take turns, individually or in groups, researching companies or funds in specific industries. Each meeting may include a presentation and discussion of one of these inquiries. Presentations may include an overview of competitors in the sector and a case for or against investing in one or more securities.
• Motions and votes on any buy/sell recommendations
• An optional social hour or activity

Many investment clubs also invite outside guests to make informational presentations at meetings, along with or in lieu of members’ research presentations. Visitors such as financial advisors and academic experts may address market trends, investment philosophies and other educational topics.

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Make Expectations Of Club Members Clear

Dont look just to fill seats. Find members who will work to make the club successful. The best way to identify members is to make sure candidates understand and agree with the clubs policies and goals. For example, a stock investment club thats created to build wealth over the long term might not be appropriate for people looking to get rich right away.

You can make the policies and goals more concrete by getting them down on paper. Other documents should include the clubs requirements for attendance, participation, and monthly contributions. Also have prospective members look over the clubs bylaws and partnership agreement and ask questions.

If potential members are turned off by how official this all seems, thats OK. Youre pooling money and making investment decisions, not playing squares during the Super Bowl.

Investment Clubs And The Sec

The SECs Office of Investor Education and Advocacy is issuing this publication to answer some common questions investors ask us about investment clubs. For additional investor education tools and resources, visit Investor.gov, the SECs website for individual investors.

What is an investment club?

An investment club is generally a group of people who pool their money to invest together. Club members generally study different investments and then make investment decisions togetherfor example, the group might buy or sell based on a member vote. Club meetings may be educational, and each member may actively help make investment decisions.

In another type of investment club, sometimes called a self-directed investment club, members research and select investments together, but they invest individually instead of pooling their money.

Do the SEC and/or the states regulate investment clubs?

The SEC generally does not regulate investment clubs. But since each investment club is unique, each club will need to decide if it has any registration requirements.

State securities laws may differ from federal securities laws. To learn more about the laws in your state, call your state securities regulator. To get the telephone number for your state, visit the North American Securities Administrators Association website.

When does an investment club have to register the offer and sale of its membership interests with the SEC?

Additional Resources

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Protect Your Intellectual Property With Trademark Copyrights Patents

If you are considering starting your own investment club, usually you may not have any need to file for intellectual property protection or trademark. This is so because the nature of the business makes it possible for you to successful run the business without having any cause to challenge anybody in court for illegally making use of your clubs intellectual properties.

But if you just want to protect your companys logo and other documents or software that are unique to your investment club. Then you can go ahead to file for intellectual property protection and trademark. If you want to register your trademark or intellectually property, you are expected to begin the process by filing an application with the USPTO. The final approval of your trademark is subjected to the review of attorneys as required by USPTO

Open A Brokerage Account

Open a single investment account in the club’s name using the tax ID number acquired from the IRS. Designate one member and a backup member to act as the contact between the club and the brokerage firm and account. The responsible member will deposit contributions into the account and handle the orders to buy and sell the stocks as agreed during the club meetings. Typically, members must contribute a minimum of $20 per month, which means a club with the average number of members will add $250 to $300 or more to the club’s account each month. Provide copies of the account statements to all club members.

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Set Up The Club As A Business

Your investment club will be a separate legal entity. Most clubs form a general partnership or a limited liability company. File partnership or LLC paperwork with your state’s business division. You will also need to obtain an employer identification number from the Internal Revenue Service. As a separate entity, the club files a partnership tax return each year under the tax ID EIN. On the partnership return, you report the members’ proportional share of profits, losses and income to be claimed on their individual tax returns.

Draft And Sign A Partnership Agreement

For business as well as federal taxation purposes, you will need to draft a partnership agreement and have all club members sign and date it.

The partnership agreement should contain the clubs formation date, fiscal year and profit/loss sharing structure.

Member initiation and termination rules should also be included here. A sample partnership agreement is located at iClub.com and can be used as a template when creating your own club partnership agreement.

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Learning Through An Investment Club

“Learning in that group setting can help you feel supported because you’ll see you’re not the only one that’s asking the most basic questions,” she said. “There’s always going to be somebody in the group that’s going to know less than you and people in the group who are going to know more than you that you can learn from.”

McNeill, who’s been involved with investment clubs since she was a volunteer for one in her teens, says the clubs can be very educational and informative.

Club members might “talk about an article they read or a book or a podcast they’re listening to about finance,” she noted.

I think investment clubs can also help keep you from making mistakes out of stock-market fears. If the market plunges and you’re investing on your own, you can be tempted to pull your money out. But club members can remind you that you’re investing for the long term and that markets go up and down, but up overall historically.

Incidentally, Wynn says research shows that women-run investment clubs perform better than “co-ed clubs and certainly better than all-male clubs.”

Tips On Starting A Stock Investment Club Successfully

By | Submitted On July 01, 2007

Starting an investment club can be an easy and fun way to learn about investing in stock. Investments clubs provide education to members who want to undertake stock investing. They also enable members to pool their funds together for joint investment.

Here are 7 tips to starting a stock investment club successfully.

1. Learn about stock investment clubs by visiting or joining existing ones. This will give you first hand knowledge of how a club operates. You can also get acquainted by reading books that offer practical guidelines and advice on starting, joining and running an investment club.

2. Talk to others who have been involved in a stock investment club. Chances are they would have some ideas and opinions on how to start a new club. Look for online advice as well.

3. You can advertise your club through local papers or by posting notices at local shops. Ask friends or family to join but be aware that sometimes money matters can cause stress in personal relationships. So, lay out the ground rules ahead of time. Decide on how large or small you want your club to be. Small clubs are more manageable and fewer members come to an agreement more easily. Larger clubs have more money to invest.

6. The main aim of a stock investment club is to educate its members. Find investment experts who are willing to speak at your meetings. Have Q& A and discussion sessions for members to interact with the speaker.

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Preparing For Tax Reporting Requirements

Generally, an investment club is treated as a partnership for federal tax purposes unless it chooses otherwise. Financial events generated by the investment club partnership are taxable in the year they are realized. If an investment club only purchases stocks , then the only taxable event is the receipt of dividends and/or interest. The club will receive a Form 1099 from the brokerage showing the dividend and interest payments. If the investment club is organized as a general partnership, all financial ramifications pass through the partnership to individual members on a proportional basis. However, this does not absolve the club from filing the appropriate tax reports.

Build A Common Agenda

Now that all the legal structures are in place for your club, you need to build a common agenda for each meeting. This is where the magic happens!

Typically, at each meeting, you want to review your financials and performance. Larger clubs sometimes do this only with the directors, and then email out statements to members. Typically, they also review investment positions, so that poor performing investments can be identified and dealt with.

Once you’ve covered the legal stuff, every club does things differently, but you have a few common purposes:

• Discuss/Decide how to invest
• Education and/or Presentations
• Research and Discussions

Many clubs will have “homework” or delegate out research for their members to complete. Typically, the club will identify a target sector or type of investment, then delegate out companies to research. At the next meeting, the club will regroup and discuss their findings.

Once the presentations and research has been done, the club has to decide how to invest. Hopefully the rules you set early on aid in this process .

Finally, don’t forget the education piece. While you don’t have to do it every meeting, it is a great idea to have presenters educate members on various topics. Many clubs even invite in speakers to share stories and information with the club. This is a great way to mix it up , while still being helpful and educational.

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Establishing A Club Partnership Agreement

An investment club is typically organized as a general partnership. The partnership agreement should outline the operating practices and serve as the bylaws, addressing all issues that will confront members from formation through a specified ending date. The first item should be a declaration of a club name. This effectively becomes the partnership name . Second, the partnership agreement should outline the organizational structure, including names and responsibilities of officers dues or contribution requirements and club meeting times, dates and locations.

One particularly useful resource for investment clubs is the National Association of Investors Corporation , a non-profit, tax-exempt organization whose membership consists of investment clubs and individual investors. NAIC was founded in 1951 with a mission to provide sound investment information, education and support that helps create successful, lifetime investors. Many resources can be found at the NAIC Web site: www.better-investing.org.

NAICs official guide, Starting and Running a Profitable Investment Club, provides all the information needed to establish and operate an investment club. This guide addresses a broad range of topics, from selecting members and keeping interest high to tips on conducting monthly meetings, working with a broker, and researching stocks. Investment club members can modify specific recommendations to fit the unique personality and goals of their club.

The Ultimate Guide To Starting An Investment Club

Investing with friends, family or colleagues? This guide explores the most important steps of starting an investment club.

Investing with friends, family or colleagues? This guide explores the most important steps of starting an investment club.

Investing with friends, family or colleagues? This guide explores the most important steps of starting an investment club.

If you are considering starting an investment club, congratulations! You are ready to take the first step to expand your financial literacy and build your wealth.

There are, however, a few things you should know before jumping in. An investment club is not a short-term, get-rich-quick solution. Trying to make money over a shorter period of time is a bad approach, not only when it comes to investment clubs, but for individual investors too.

A three- to five-year vision is a common outlook when it comes to investment club strategies. As such, potential members should be vetted based on their long-term commitment. If members of your investment club decide to leave and pull their money out after a short period of time, it could cause serious damage to your investments.

This guide will provide some insight into what an investment club is and, most importantly, the steps involved in starting one. While this list touches on most major points, it is not set in stone and you might need to take some additional steps.

Establish An Objective

Formulate A Strategy

Find The Right People

Choose A Legal Structure

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Stay Away From Investments With Tricky Tax Consequences

Speaking of the treasurer, keep this critical member of your investment club happy by having a policy of not investing in equities that require special treatment or possibly delay tax filings because of their structure. Real estate investment trusts, for example, make several types of distributions during the year that might have different tax consequences.

Other problem investments for clubs are

• limited liability companies ,
• limited partnerships , and
• master limited partnerships .

Any security that directly holds a commodity such as gold or silver as its only asset also creates difficulty at tax time. Royalty trusts, which are pass-through entities, are a final trouble area for clubs.

So stick with common stocks.

How To Start An Investment Club

This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin.wikiHow marks an article as reader-approved once it receives enough positive feedback. This article received 11 testimonials and 98% of readers who voted found it helpful, earning it our reader-approved status. This article has been viewed 318,198 times.

If you’re interested in investing but don’t want to go at it alone, you can join an investment club or even start one of your own. An investment club consists of members who study stocks, bonds and other investments. The goal is to have each member take an industry and report to the group why they think it is a great investment. Knowledge is power, and wisdom from many helps assure success. Many times they will pool their money together in order to make joint investment decisions. It’s a great way to give and get wisdom. Working with others will help you and others make intelligent investment decisions.

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Raise The Needed Startup Capital

Aside from the fact that you are going to encourage people to join your investment club and pool cash together for the purpose of investing the cash, you would need money to go through the process of registering the investment club and of course setting up a structure that will make it easier for you to effectively attract like minds and to effectively run the investment club.

So in essence, you would be required to source for start up capital to start your investment club especially if you dont have the money saved up somewhere. On the average, you are not expected to go through the stress of sourcing for start up capital as an entrepreneur who is sourcing for money to start a normal business.

Over and above, the rule of thumb when it comes to financing a business is to write a good business plan. If you have a good and workable business plan in place, you may not have to labor hard before convincing your bank, investors and your friends to invest in your business with a good business plan and good managerial skills, they can tell if their investment will be safe under your watch.

Here are some of the options you can explore when sourcing for start up capital for your investment club

• Raising money from personal savings and sale of personal stocks and properties
• .