What is an Investment Club?

Joining an investment club is an excellent way to learn more about investing, and it is not unusual for investment clubs to experience outstanding returns.

It is important that members of investment clubs have a long-term outlook, and many clubs have rules or penalties regarding early withdrawals. Being explicit about a club's investment style is also important, and establishing what types of investments the club will and will not consider is essential to preventing conflict among members.

For more information on investment clubs, visit the National Association of Individual Investors at http://www.betterinvesting.org.

Also, to learn more about investment clubs, click here to read Harness the Power of Connection: Join an Investment Club.

How Does an Investment Club Work?

Joining an investment club may require a connection to an existing member or a vacancy in the club, but any group of individuals may start their own investment club. The process includes finding a group of like-minded investors, completing a partnership agreement, registering the club with state and federal government, obtaining a taxpayer ID from the IRS, and holding regular meetings. The investment club should also open a brokerage account and maintain strict and organized accounting procedures.

Investment clubs are commonly formed as partnerships or limited liability companies (LLC), and a club's income and losses are consequently passed through to its members, who report them on their personal tax returns.

Members may be required to make an initial minimum investment and then make regular contributions. Often, but not always, each member of the investment club contributes the same amount of money. Members are almost always free to invest outside of the club, which makes an investment club a way to diversify a portfolio.

Club meetings are usually held monthly. The meetings involve reviewing existing investments, taking deposits for new investments, and selecting new investments. Members personally research existing and potential investments, and the group is often able to conduct more thorough research as a team than each member could do individually. A majority vote is normally is required to buy or sell an investment.

Why Does an Investment Club Matter?

An investment club is a group of people who pool their money and then collectively decide how to invest it.