The Benefits Of An Investment Club

The uninitiated tend to view them with suspicion, but investment clubs are by no means as spurious as they sound; joining an investment club is not akin to signing up for a Ponzi scheme, flushing money down the toilet or walking down a dark alley with an envelope full of cash. Investment clubs actually make good commercial sense, providing novice investors with the opportunity to make money from stocks and shares in a way that may be considered safe, fun and friendly.

Unless Nick Leeson is in charge of proceedings, an investment club is likely to involve relatively small investments, at minimal risk, for moderately healthy returns. An investment club is often seen as a way to make a little extra cash or as a more logical (in terms of odds) alternative to joining a lottery syndicate, but what exactly is an investment club?

As its name suggests, an investment club is a club that has been formed for the purpose of investing money in stocks, shares or commodities. The majority of investment clubs are formed by people who already know each other, but groups can also consist of complete strangers. The special ingredient of most investment clubs is unity: all members of the club should share similar ideas on how their money is invested. So how much is invested and who decides what to do?

Investment clubs were initially regulated, in a completely unofficial capacity, by ProShareClubs, but any legally eligible person can join or form a new investment club in the UK. Typically, investment clubs comprise a number of individuals who contribute an agreed sum of cash (usually anything from £10 per month) to the investment pot, out of which money is invested in stocks, shares, etc., in a way that is planned by the club.

Friends and family often form investment clubs because they feel that control over the direction of spending is in their control. This happens to be one of the most important advantages of joining or forming an investment club instead of dealing with an investment firm or manager. The members of an investment club can democratically choose how to invest funds, selecting stocks and shares that reflect the interests of members. In contrast, investment managers tend to manage portfolios with limited direction from clients, who retain little control over investments.

Another advantage or benefit of investment clubs is that people who know relatively little about the stock market can share ideas and information with like-minded members. The knowledge that can be gained from taking part in an investment club is very often substantial, but the learning curve is not usually too steep for most novice investors to tackle.

Unlike private portfolios, investment clubs share gains and losses equally. Assuming the constitution of the investment club requires all members to contribute equally to the investment pot, the amount of money generated from dividends and share transfers can be distributed evenly throughout the club (after fees have been subtracted). Profits and losses accrued from investment clubs must be individually declared for tax purposes by each member.

Aside from the benefits mentioned above, investment clubs offer people the chance to meet and interact with others in a way that is both exciting and educational. The risks involved in small to medium sized investment clubs are usually very small, but any person who plans to invest money on stocks and shares should proceed with caution. In all cases, it is sensible to seek help from professional traders for complex investments, while general information can be sought from Moneysupermarket.

Comments are closed.