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What to Be Wary of In Starting An Investment Club

Starting an investment club can be exciting. Many members will have visions of chatty afternoons spent discussing stocks over coffee, or lucrative stock portfolios that will provide a comfortable retirement. But there are a few things to beware of when starting an investment club:
• Be sure you are asking people to join who are actually good matches for your club. Friends and money do not always mix well, as financial difficulties can strain friendships. This can be even more important when dealing with relatives.
• Be sure that everyone is given a say in the operating agreement and club philosophy. This will avoid dissension down the road. In the beginning, many new investors will not always want to say that they are not comfortable with something, only for everyone to discover a few months later that a member disagrees with the philosophy or with the meeting place.
• It can take a few years for an investment club to make money. Be sure everyone understands this and is willing to risk their money for a couple of years.
• It's important to be organized and to set everything up before you actually begin investing. Many investors get so excited that they take a "hot tip" from someone they know without fully researching the company, and rather than building a strong, well-balanced portfolio, they end up with an erratic, confusing mess of stocks and shares.
• It is a good idea to buy a few books or magazines about investing for educational purposes. However, some investment guides are fairly expensive and not really necessary for your purposes.
• Be sure you (or the member in charge of this) understand how to buy and sell the stock, and that whatever broker your club has gone with is flexible enough that you can buy or sell at any moment, rather than having to wait.
• Remember that an investment club, while definitely having a social aspect to it, is a legal business. Do not join a club with people you would not ordinarily go into business with.
• The club as a business is not liable for taxes. Remember that you will have to pay taxes on your share of any gains the club's portfolio makes, so be sure to check with your accountant how best to go about handling any profits.
Basically, when starting an investment club, everyone needs to remember that they are starting a business, and plan accordingly. No one would open a store with someone they did not trust, or start a business without doing research, and neither should you and your friends. It's not all about the socializing, although some people may join solely for the social aspect - just make sure all of the business stuff is dealt with, and then everyone can have fun.

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