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Investment Clubs Offer Experience And Insight 2
It can be very damaging to an investment club's atmosphere when some members want to invest club funds in high-risk penny stocks while others gravitate towards blue chips. If you are starting the club, make sure every member understands and supports the club's approach. If you are joining a club, make sure its style meets your needs. After all, there are many different types of investment clubs to be found, so before you follow through and become a full member, be sure to assess its investment style and try to judge how closely it matches your own aspirations. Chances are, you will learn much more and enjoy a more rewarding experience if you spend a bit of time finding the investment club that best fits your personal investment style or objectives.
3. Join a club association
The National Association of Investors Corporation (NAIC) offers some excellent support and information for people wishing to join or start their own investment club in the United States. The NAIC not only provides excellent tools, but also publishes a monthly investor-learning magazine. Membership to the NAIC costs $40 for a new club, $25 for individual club members and $50 for individuals. According to NAIC data, the number of investment clubs registered with the association has seen strong growth in the early 21st century, and, to the chagrin of industry professionals, about half of all registered clubs have been able to outperform the S&P 500 - a level of excess returns most mutual funds are unable to consistently achieve. That being the case, however, market-beating returns do not contain all of the value a member receives from a well-run investment club.
In the U.K., this is called ProShare Investment Clubs, which offers a host of resources such as newsletters, online portfolio tools, a message board for members and an investment club manual. In Canada, the Investors Association of Canada (IAC) also offers in-depth newsletters on personal finance education, discounts on books and the like.
4. Always value education
While investment clubs should strive to make as much money as possible in the markets, education is one of the primary reasons for joining a club. Clubs operating with the goal of educating their members will find that profits naturally follow. It is arguably more important that investment clubs provide members with the education and experience that helps them determine why the club's portfolio has grown, instead of simply watching their net worth grow. After all, if an investor has no interest in increasing their market knowledge, mutual fund investing or a full-service broker can probably provide them with reasonable returns without the commitments and activities inherent in an investment club.
An investment club should also focus on ensuring that all members receive a relatively equal level of educational value from their membership. In fact, it is a good idea to assess a club's level of member expertise before you decide to join. This ensures there is a reasonable match with your own skill level. Also, all club members should participate equally; some members will naturally carry more of a leadership role than others, but if some members do not contribute periodically to the club's meetings, the atmosphere of the entire club is likely to suffer, decreasing the value everyone receives from their membership.
Summary
Investment clubs are an excellent way to ease your way into investing without getting burned or ripped off by unscrupulous brokers (see Understanding Dishonest Broker Tactics). Whether you start your own club, or join an existing club, you're sure to find that being a member of a club is enlightening and an excellent learning experience. Also, one of the most valuable ongoing benefits of an investment club, especially for beginner investors, is the ability to have investment decisions analyzed by different points of view. If properly founded and maintained, investment clubs can yield their members excess returns on their investment funds year after year, while providing them with an invaluable educational experience that will last a lifetime.
By Investopedia Staff, (Investopedia.com)
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