| Learn And Make Money With An Investment Club |
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Making money need not be difficult if you know how, there are means of having your money work for you while you go about your normal business, one such way is starting or joining an investment club. Find out how!
Making money need not be difficult if you know how, there are means of having your money work for you while you go about your normal business, one such way is starting or joining an investment club. Find out how! An investment club is a group of people who come together to pool their resources to invest. Investments could be in the capital market, money market, real estate or any potentially lucrative venture. Members of the club can be friends, co-workers, family members, or members of a religious group. Investment clubs can be a great place to learn and share ideas about investment opportunities. Some are made up of only men, others of women, but most are mixed. Some clubs admit only professionals who already know about investments while others accept both professionals and green horns. People start investment clubs for various reasons: to test their investment skills, to have a source of extra income, to learn about the capital market, while the desire to share acquired knowledge is the driving force for others. In Divine Investment Club, Helen Udofa, Margaret Iroha, and Kate Popoola, members, say they started the club because “we wanted to help each other create wealth and also have something to teach our children.” Benefits Being a member of an investment club helps you reduce risk, pay less commission and sharpen your investment skills; you also get direction for your own personal investments. Investment clubs offer the inexperienced investor an opportunity to learn faster about the capital market in a friendly environment. Iroha adds that it will help develop a disciplined financial life since the individual is compelled to invest a certain amount of money regularly. Returns on investments have been quite encouraging; a typical club puts expected returns at 30% per annum. Who runs the club? The club is jointly run by the members and their officials based on a set of agreed guidelines. Some clubs elect their officials while others appoint based on trust and integrity. Adopting the face-to-face meeting works for some, while others prefer to meet in a chat room on the Internet to take decisions on their portfolio. Meetings are usually fixed with notice to all members. “Therefore, whatever decisions reached affect absent members, since they were notified,” says Morayo Adesanwo of the Institute of Financial Planning, who is also an official for Crombec Investment Club. In addition to this, members agree on the date and method of paying the club's contributions. No one is allowed to make a higher contribution than others. Consider your options, make your move For some the idea of starting an investment club seems like a Herculean task and joining an existing one is the best option for them. But before joining ensure you: Make enquiries. Do this on different investment clubs before settling for a particular one. Find out all you can about the club before you join. You could begin by doing a check on the members of the club to see if they are the type you can get along with; nobody wants to be with people who make them feel uncomfortable. Also, find out their objective and investment style to see if it suits yours. Some have this laid out in their guidelines. Consider Cost. Existing clubs can be more expensive than new ones. New clubs agree on what will be convenient for everybody and it is often not much. Some clubs start with as low as N2000 while others contribute more. For Crombec Investment Club, “you must have up to N100,000 to be admitted into our club,” says Adesanwo, “this equals the value of existing members' shares.” Udofa says the same is obtainable in Divine Investment Club. This ensures that everyone at any time is entitled to the same amount of profit. Organisation. Find out how the club is run generally; do their meeting days suit your personal schedule and where it doesn't are you willing to adjust? Can you pay the monthly contribution or would you prefer a club that allows you to pay less? Are you okay with their meeting venue? At the end make sure you choose a club you are comfortable with that can help you achieve your purpose for joining. However, if you are adventurous, starting an investment club would be an exciting idea. If so, these tips can help you get started. Begin by talking to friends to see if they are interested. “We began by telling our friends who in turn told other friends and relatives,” Udofa tells us. Only those who show interest should be invited to your inaugural meeting, perhaps others may see the need and join later. Determine before hand how many people you want in your club, 10 to 20 is a reasonable number. When you have too many management becomes an issue, such as finding a comfortable meeting place that would take everyone at once and getting all members to live up to their commitments. Agree on a meeting day and time. Some clubs meet fortnightly, monthly and others quarterly. Crombec began meeting monthly initially but later changed to meeting quarterly to encourage a good turn out and more participation from its members. Divine also had to adjust to something more comfortable when the need arose, so did Life Investment Club. Whatever works should be the watchword when deciding on the day to meet. It should be a day that will ensure availability of all members. Some clubs started off well but didn't last because members could not keep up with the meeting days. A member of a defunct investment club gave absenteeism as the reason the club didn't do well. Though not officially dissolved he feels it's already a failed project. To avoid this choose a convenient time for all members of the group. If every member can get online at a particular time on an agreed day then you can consider this instead of a face-to-face meeting, which can take a longer time. Define your objective. “An investor without investment objectives is like a traveller without a destination,” says the popular writer Ralph Seger. Ensure that all members share in this objective and are willing to go by it. This will help ensure that personal objectives do not conflict with the group's. Determine what to do with your returns. According to Adesanwo, “We haven't made up our minds on what to do with our profit yet, because the initial agreement was to keep investing for at least three years. After this members will come together to take a decision. We are interested in real estate, so if our returns are high enough we could move further into real estate.” Choose a name. Your club needs a name for identification. Crombec was carved out of the initials of members who turned out in the first meeting. You could look for something that is akin to your geographical location, initials of your names, or anything you are glad to identify with. Choose your officials. This makes for the smooth running of the group and delegation of duty. Some investment clubs have the following officials: President or Chairman, the Vice-president or Vice-chairman, a Secretary, Financial Secretary and an education officer who organises training and research for the club. Monthly contribution. Most investment clubs make their contributions monthly; the officer in charge makes arrangements on how the money will be paid to facilitate their stock purchase for that month. Some clubs have an account where all members pay money into then the officer in charge ensures the lodgment of the money into their stockbrokerage account. Open a stockbrokerage account. A stockbroker will keep a record of the group's transactions. You may go through a list of stockbrokers to determine the one that is best for your club (see our issue 3 on how to choose a broker). Delegate duties. Besides the education officer a different member of the house should be appointed at different times to carry out research on the best picks for the group. Possible pitfalls Just as with everything else in life, starting and running an investment club also has its challenges. Once you know them you are better prepared to handle them. Here are some pitfalls to look out for: Loss of interest. Some members may begin to lose interest and opt out. Others, due to financial and time constraints, may also pull out of the group. This can create a vacuum, which if not carefully handled may affect the group. In Divine Investment Club, if anyone leaves the group before the initial two years agreed upon, such a person forfeits five per cent of his or her returns. Crombec gives such members the exact value of their shares. Not getting your facts right. A group could be affected if research is not properly done and so produces distorted facts or projections, such as the group's expected return and how to achieve it. This involves some calculations and so should be done by someone with expertise. Distraction. Sometimes members come up with ideas which do not match the group's objective, such as going short term as against the group's initial idea of going long-term. The group's philosophy should be adhered to unless there is a general consensus to do otherwise. Transfer or resignation. Members sometimes get transferred from the location where the club was initially formed or resign and leave the locality. This is when some clubs begin to look for new members to fill up the gap or increase their monthly contribution to make up. Lack of technical know-how. Iroha identified this as one of the challenges facing their club. In her words, “Maybe if we know how to read and interpret financial statements we will make more informed decisions for our club.” Some clubs lack people with knowledge on the capital market and so depend on their intuition, advice from friends, or just follow rising stocks. You could recommend common ground references for members such as books, magazines, and websites that have vital information on investing, such as the one you have in your hands now. This will ensure no one is left behind in the learning and improvement process. According to former US President, Benjamin Franklin, “An investment in knowledge always pays the best interest.” Disagreement on timing. Individuals or a faction in the group may feel that it is the best time to buy or sell a particular stock. This can generate controversy if the other members of the club think otherwise. In this case it may be best to get expert advice. Femi Adegelu, a legal adviser and member of Life Investment Club, advises that an investment club should be registered to protect the group. He believes this will strengthen the club's operations, boost their image and check erring members. Clubs can last for as long as possible if properly managed. Following the bullish trend in the stock market, increasing returns in real estate and rising business opportunities with promising returns, the idea of investment clubs will give investors added opportunity to make more money, and now seems a very good time to maximise the gains that an investment club has to offer. |
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