Investment Clubs
Hi Guys,
I'm a newbie on the forum but couldn't resist adding my two-pence worth to this discussion. I came across this article on the net and thought I'd share it with you. The points are worth considering while forming your investment club.
Written by Dr. Boyce Watkins
Wednesday, 16 August 2006
The easiest way to lose a friend is to go into business with them. But making money can be like making love: If you do it with someone else and do it well, they are going to like you a lot more in the end (aiy??). Here are quick tips for forming an investment club without creating a financial nightmare. Below I list ideas you should keep in mind when forming a club. Afterward, I give a list of “don’ts”, followed by specific steps for getting started
Teach each other how to fish – make sure that your investment club has a strong educational component. The goal is not just to make money, since learning AND making money is the best way to get a great return on your investment.
No dead weight allowed – make sure that everyone is an active member. Having a set of passive participants is not only irritating, but it can cause your investment club to be defined by the SEC as a mutual fund, leading to so many legal regulations that you might need to call Johnny Cochran in heaven to get you out of it (a long distance phone call I’m sure). (OK, the last bit may not apply in Naija but still, no dead weight is a good one)
Invest with people you like personally, and trust financially. Investing with a bunch of strangers can be risky and dull. Investing with friends can be more fun. However, those friends should be financially sound and reliable, for you are risking your friendship along with your money. Remember: your relationships are the most valuable asset in your life portfolio, and you want them to remain protected.
Make sure you are all on the same page and share the same vision. Here is a short check list to see if you are eye to eye:
Compare Investment strategies: Are you a long-term investor or a quick trader? It is ok to be either one, just make sure that everyone has the same mentality.
Is this your nest egg or fun money? Mixing your nest egg with someone else’s fun money is the quickest way to get your eggs broken.
Asset allocation choices: What kinds of assets do you prefer? Do options make your stomach turn? Are you a real estate junkie? Discuss this with your partners before mixing your money together.
What are the rules going to be? How do we choose new members? What happens if we want to divest? How often are the meetings? Can I miss meetings regularly?
Is making money our number one goal, or do we have a broader purpose? If you want to save the community while making money, make sure that your partners want to do the same.
How are disputes going to be resolved? Remember: when money is lost, friendships are the most jeopardized asset. Clear resolution dispute can be your insurance.
Here is a list of surefire ways to make your investment club a horrible experience (i.e. things you DO NOT want to do):
Allow some of your members to be inactive
Buy stocks without doing sufficient research
Keep changing your investment strategy
Keep members in the club who are not paying regularly
Don’t treat your club like a business
Engage in poor record-keeping
Quick simple steps to get started:
Form a Limited Liability Corporation
Carefully choose your members, preferably no more than 10 to start
Put together your rules and by-laws
Start doing research on your investments
Begin investing!
And in the end it's not the years in your life that count. It's the life in your years.
-- Abraham Lincoln
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