Investment club

Investment club

An investment club is a group of individuals who meet on a regular basis for the purpose of pooling money and retail investing.[1] The invested sums can be $30 to $100 per month. For certain type of club pooling money is not mandatory. Investment clubs provide members a means to learn about markets, while meeting and working with people who have similar interests.[2]



The world's first investment club was established in Texas in 1898, back in the days of the Wild West when few investments could be considered safe. Investment clubs were seen as an ideal way of spreading the risk - away from just cattle.[3]

While the first investment club on record dates back to the 1800s in Western America, Various online communities devoted to this type of investing have recently emerged and have contributed to the personal investing boom in the United States. One of the reasons that people come together in investment clubs is to learn how to invest.

Starting a club

Industry observers recommend prospective members adhere to these guidelines:[4]

  • Consult a tax adviser on the taxation implications of the club's selected legal structure
  • Establish an investment mission, policy and goals before investing
  • Draw up a written operating agreement covering asset management rules and membership changes

Club types

Contributing versus self-directed

Contributing clubs require members to contribute monies to a collective pool on a periodic basis. The periodic basis is typically monthly. Whereas, self-directed investment clubs simply meet and learn about investing but invest on their own.

Contributing classifications

The following 4 classifications or 'club types'[citation needed] Each of the different club types has caveats associated with its structure, size and members geographic location.[citation needed]

  • Small local clubs: Less than 15 members meeting locally.
  • Large local clubs: 15 or more members meeting locally.
  • Small internet clubs: 15 or less members who meet on the Internet.
  • Large internet clubs: 15 or more members who meet on the Internet.

Conduct of business

In order to operate an investment club, business must be conducted in an orderly fashion. The level of formality will vary based on the club type (see club type). A typical club will have informal channels of communication via mailing lists, Twitter accounts or message boards. In additional to the informal channels of communication, an investment club must set up formal channels of communication to conduct business. Typically, this is done with monthly meetings. Typical meeting agendas include all the normal activity you would expect in an organization with elected officials. A typical meeting agenda:[citation needed]

  • Roll call
  • Old business - list of any unfinished business from the previous meeting.
  • Summary of votes - Summary of all voted decisions from the previous meeting
  • NAV presentation - NAV or the Net Asset Value of the Club will indicate what each club member is worth on paper.
  • Available funds - a presentation of Available funds to invest.
  • Presentation of current research - each member assigned to present an investment option will present his/her research.
  • Vote to hold or invest - A vote to hold cash, sell current assets or invest in one of the investment options
  • Investment vote - A final vote on an investment strategy specifying an exact amount to invest and strategy to execute that investment.
  • Other business - Typically, other business will include proxy voting needs or other day to day business operational needs. This could also include options change a brokerage house, or discussions of couter party risk.
  • Formal close of meeting

Legal structure

Investment clubs are generally formed as general partnerships, but could also be formed as limited liability companies or limited liability partnerships (in states that allow them). While an investment club could incorporate, the double tax treatment on corporate distributions makes the corporate structure less desirable than a partnership. Typically, a general partnership does not generate any tax liability on its own; instead, any tax liability is passed through to members each year.

In order to understand the legal structure that an investment club should choose, the club should first understand its club type, which according to the cited reference could be a small local club, large local club, small internet club, or large internet club. Each of the different club types will have different legal requirements as well as different reporting requirement to the SEC.

Tax implications

In the United States Investment club partnerships must file Form 1065 and Schedule K-1s with the IRS each year, and with states that require partnership filings.[citation needed] In the United Kingdom investment clubs and their members are required to submit form 185(new) to HMRC each year.[citation needed] Investment club accounting software can facilitate the management of a club's books and the preparation of tax filings.

See also

External links

Further reading

  • Investment Clubs for Dummies by Douglas Gerlach and Angele McQuade (ISBN 0-7645-5409-3), published in 2001

Reference Section

  1. ^
  2. ^ Dunnan, Nancy (May 1, 2007). How to invest $50-$5,000: the small investor's step-by-step plan for low. Harper Paperbacks; 9th edition. p. 58. ISBN 978-0061129827. 
  3. ^ "Investors are slowly joining the club". The Independent (London). June 3, 1995. 
  4. ^ Barns, Roger (September 1990). Black Enterprise, Personal Finance. pp. 34–35. 

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