Short of working with an investment professional directly, joining an investment club offers you a unique opportunity to learn and grow your investment by working with other investors. This process can truly be rewarding as you are networking with others who have a vested interest in growing their portfolios. While there are some negative aspects to investment clubs, overall, they are extremely valuable and can be loads of fun.
In addition to being fun, investment clubs can be extremely educational. The mere act of speaking to other investors and sharing resources makes all the difference in the world. Additionally, clubs often bring in seasoned professionals to offer insight and guidance to investment groups. If the investment group charges annual dues, this is what these monies are used for. Additionally, dues are often used to purchase resources in bulk at significant discounts to the group.
Finally, investment clubs provide members with various referrals to a network of professionals and access to many other resources. These professionals might include brokers, accountants, lawyers, etc. The various resources might include information about business opportunities, private auctions, access to social clubs, etc.
Types of Investment Clubs
In this age of endless information, it is more difficult for an individual to stay on top of all of the various changes. This is where investment clubs can be most beneficial for you. Essentially, there are two types of clubs to consider: Group Portfolio Clubs and Self-Directed Clubs.
Group Portfolio Clubs - members invest their money all together and make decisions collectively based upon majority group consensus. While the actual decision-making process can vary from group to group, each member has a say. In some cases, members who provide higher investment amounts may have more say. This group operates much like a mutual fund and allows small-scale and first-time investors to buy into larger investments that typically have minimum investment requirements. These clubs are often set-up as partnerships or limited liability companies for tax purposes to avoid double taxation like corporations when possible.
Self-Directed Investment Clubs – members invest by themselves but consider options and various investment strategies together when they meet. The group cannot control how a member invests. These clubs tend to focus more on educational aspects of investing.
Cons to Consider
While there are benefits to joining an investment club, there can be some drawbacks as well. Try to research the group thoroughly before joining, including the performance and the overall investment strategies and objectives of the fund. Also talk with members and attend a meeting or two to get a true feel of what it is all about. If their objectives are in sync with your own, still tread carefully, particularly with Group Portfolio Clubs. However, with Self-Directed Investment Clubs, this is not as much of a consideration, as you can invest how you desire.
Final Thoughts
Even with the potential cons, it is worth exploring investment group options. The benefits far outweigh the drawbacks anyhow, considering the education you gain and the connections you make along the way. Take your time and look around and you should find an investment club that fits your investment objectives.
