|If you're like most new investors, you're probably intimidated by the time and research necessary to put together a successful investment portfolio. After all, you have a lot to learn; you're probably not ready to risk big money. In fact, you may not have much money to risk. But here's how more than a million investors in 20 countries have conquered their trepidations: they're putting their heads together, pooling their finances, and forming investment clubs. |
That's right, investment clubs. In case you haven't been paying much attention to the phenomenon, investment clubs are small, private organizations -- nothing more than a gathering in most cases -- in which a group of investors, usually novices, pool their time and resources to learn more than they could on their own about various forms of investments and then invest their hard-earned money as a group, although many club members also invest on their own.
If you're imagining a bunch of little old ladies around a doily-covered table, drinking tea and chatting about their nesteggs, think again. More than 35,000 investment clubs are registered with the National Association of Investors Corporation (NAIC), a nonprofit investment club organization. They can't all consist of little old ladies!
Investment club members are as diverse as the Wilshire 5000, but they all have similar goals. They all want to learn more about investing, they all want support from other investors, and they all want their money to grow. To meet those goals, families, coworkers, friends, people with no investing background, and even experienced investors are joining forces.
You've probably heard the investment advice, "Buy what you know." But many beginners feel they don't know enough to begin, and they're drowning in stockpicking suggestions. When you're confronted by a formidable array of financial information, it's hard to know where to start.
Investment clubs will help you tackle the research, because it is divided among the club members. Each member reports back to the group on his or her results. With 15 to 20 people behind you in an investment club, essentially, you're part of an analysis team dedicated to successful investing. To make sure everyone on the team evaluates stocks consistently, members follow specific investment objectives and guidelines, which they draft when they start the club.
Clubs are inclined toward long-term investing. The NAIC reports that club members tend to hold stocks for about six years. So for them, the buy-and-hold strategy seems to work well. The average NAIC investment club achieves 17.9% return on its investments and beats the market about 60% of the time. The NAIC's statistics are clear; when average people join investment clubs, they achieve better than average returns.
Those returns come as a result of careful planning, research, and commitment. That's one reason clubs succeed; they encourage members to develop sound investment habits. You can't buy or sell a stock without thorough research (even if you were to try, no one else would vote for it), and you can't buy or sell in the heat of the moment (you have to wait until the next meeting, allowing for plenty of time to think about it).
Clubs also motivate members to invest regularly. If you don't have much money to invest or don't feel comfortable investing large amounts, you should still set aside a little every month. You'll learn a lot in the process, and you can apply what you've learned when you have more discretionary money. Remember, even a small investment will grow if you contribute regularly and reinvest your earnings.
In fact, your money will stretch farther if you put it in a club account. Your conservative monthly investment of $25 (that's how much most club members contribute) won't go far on its own. Some brokers charge that much just to execute a trade. In a club, though, fees are divided between the members. Pooling your money won't increase your individual holdings, but it will decrease the fees you pay -- and lower fees eventually lead to higher profits.
Anyone who has served on a committee or worked on a team knows how hard it can be to coordinate people. Throw money into the equation, and it can get downright ugly. If you talk to investment club members, though, they'll tell you that meetings are more fun than frenzy. That's because clubs carefully organize and document their procedures. If you're thinking about starting an investment club, consider the following guidelines:
For camaraderie and support, investment clubs can't be beat. Earnings are important too, of course, but the main benefit is educational. Learning to invest, like any other skill, takes time, trial, and error. Investment clubs take the sting out of the sometimes-painful learning process.
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Traders' Resource Links
|Charting the Stock Market: The Wyckoff Method -- Books|
|Working-Money.com -- Online Trading Services|
|Traders.com Advantage -- Online Trading Services|
|Technical Analysis of Stocks & Commodities -- Publications and Newsletters|
|Working Money, at Working-Money.com -- Publications and Newsletters|
|Traders.com Advantage -- Publications and Newsletters|
|Professional Traders Starter Kit -- Software|