How to Start An Investment Club
Over the past few weeks, I’ve been thinking more and more about starting an investment club. I want to get to know other people who are into investing in stocks, and learn and grow together. I bought and started reading the book How to Start and Run an Investment Club for Fun and Learning, and today I started putting materials together and extending invitations to the club.
I also found a really cool app called Voleo which helps manage investment clubs and their investments; however, it is unfortunately only available in the US (despite having its headquarters based in Canada!). I emailed them and asked when they’ll be available in Canada, and they said they’re trying to find a financial institution to partner with them. Hopefully they will find one soon!
Some may think investment clubs are a thing of the past, but articles suggest they are not. Also, with more and more millennials getting into stock buying, I predict that investment clubs as a trend will see a resurgence — especially technology-enabled investment clubs. Who knows, maybe the next fantasy football league will be an investment club instead?
Here are the documents I pulled together, in case they are helpful for you starting your own investment club.
Invitation
Hi folks!
Hope you are doing well.
I have been really enjoying investing lately and have made some good returns. I’d like to learn more about investing, and thought an investment club could be a good way to do so — so I’ve decided to float around the idea of starting an investment club, and wanted to invite you to learn more about it. No worries or pressure either way, just thought you might be interested so am passing it along to you :). Here is more info.
What is an investment club?
From the book How to Start and Run an Investment Club for Fun and Learning
“The concept is relatively simple. A group of individuals commits to regular get-togethers (usually monthly) and contributes a set amount (typically about $50) which is jointly invested in investments of the club’s choosing.
In some ways, the resulting pool of investments resembles a tiny mutual fund. However, this fund is managed by the club’s members.
With typical monthly dues ranging from $25–75, investment clubs do not represent, in themselves, a sure-fire road to riches. Rather, they are an entertaining, educational and often profitable way for you to learn how to invest. This is not to say that over a long period of time, contributions to an investment club cannot be substantial. However, the primary benefit of joining an investment club is that it will help you learn how to improve the performance of all your other investments, too.”
The three key benefits of an investment club are fun, education and profit.
More info: <link to primer on Why Form an Investment Club? Materials copied below.>
I was thinking it would be fun to start an investment club and focus on learning about investing in high-growth stocks. I was thinking we could meet monthly (or less frequently) and consider contributing $50–100 a month to investments or something like that.
Sample Club Constitution
Here is a sample club constitution, copied from the book mentioned above: <link to Sample Constitution. Materials copied below.>
Invitation to Informal Meeting
I am hosting an informal meeting on Zoom. This will be an informal gathering of prospective members. It will allow people to get acquainted and ensure everyone is reasonably like-minded about the club’s intended purpose and investment approach.
The meeting will be <date> at <time>.
Investment Questionnaire
If you are interested in joining, please fill out this investment questionnaire, copied from the book above: <link to Investment Questionnaire. Materials copied below.>
If you wish to wait to do this after the informal meeting, no worries.
Looking forward to it!
Why Form an Investment Club?
From: How to Start and Run an Investment Club for Fun and Learning
“What is an investment club?
Investment clubs — usually groups of 10–35 people who join together for fun, education and profit — started in Texas more than 90 years ago. Today, there are more than 30,000 investment clubs in the US…and 5,000 organizations are operating in Canada.
The concept is relatively simple. A group of individuals commits to regular get-togethers (usually monthly) and contributes a set amount (typically about $50) which is jointly invested in investments of the club’s choosing.
In some ways, the resulting pool of investments resembles a tiny mutual fund. However, this fund is managed by the club’s members, with or without the assistance of a professional advisor, depending on the club’s collective level of expertise.
With typical monthly dues ranging from $25–75, investment clubs do not represent, in themselves, a sure-fire road to riches. Rather, they are an entertaining, educational and often profitable way for you to learn how to invest. This is not to say that over a long period of time, contributions to an investment club cannot be substantial. They can play a large role in improving your life, whether it’s helping to pay for the kids’ education, paying off the mortgage sooner, or contributing to a more comfortable retirement. However, the primary benefit of joining an investment club is that it will help you learn how to improve the performance of all your other investments, too.
A fun, low-cost way to learn and prosper
Now, you may be asking why go to all that trouble when you can pay a professional mutual fund manager a relatively small fee to do all the work for you? The answer can be described in three little words: fun, education and profit.
Make some money
Let’s start with the last reason first, which is really the least important. Some people are afraid to entrust their savings to their own judgment or that of their friends when the expert advice of mutual fund managers or investment advisors is available. Well here’s a fact that will surprise you:
In the 1980’s, more than 60% of US-based investment clubs outperformed The Standard & Poor’s 500 Composite Index. By comparison, less than 25% of mutual funds were able to beat the S&P. Equivalent comparisons for Canada aren’t readily available, but we strongly suspect they would reveal a similar pattern.
How is it possible that you and your friends on Main Street can consistently beat the performance of those highly paid investment gurus on Bay Street and Wall Street?
The fact that you aren’t charging for your own advice makes a big difference. How big? Well let’s assume that your investment club achieved a 10% annual rate of return (capital appreciation plus all dividends reinvested) on its investments. To achieve the same net return on a mutual fund with 2.5% management fee, you have to pick one whose managers were able to achieve an annual rate of return of roughly 12.83%.
The second reason your judgment counts for more than you might think is that you are living in the real world. While the high hinance takes place in Toronto, New York, and other money centres, often the earliest signs of a good idea’s success or the promise of a new retailing format are witnessed first by the everyday consumers upon whose acceptance they will depend. Club members can also know a lot about specific companies or Industries.
This isn’t to suggest that expert research doesn’t play a major role in guiding investment decisions. In fact, learning how to conduct research is one of the main reasons for joining an investment club in the first place. However, it’s worth remembering that the gut feel for the potential of an innovative product or service is an important advantage to the small investor. Remember, too, that the collective wisdom of 10 or 20 reasonable people often makes for a better decision than the opinion of a single person, no matter how knowledgeable. Consider for example the thousands of home office workers who recognized the enormous potential of internet technology before it occurred to Microsoft’s Bill Gates!
Learn new things
As we’ve said, picking the right stocks depends on a disciplined approach to research. But as even novice investment club members soon realize, it is a skill that can be learned in a relatively short period of time. That’s because — thanks to their team approach — investment clubs share the responsibility for research and member education among several people.
As part of a team you’ll also have better access to information. Through investment clubs, members can share the cost of what would otherwise be prohibitively expensive investor information services. Best of all, the research and analytical skills developed through the investment club are yours to keep. Everything you learn in the investment club can be used to help build wealth in your own investment portfolio.
Have some fun
Perhaps the most important reason for joining an investment club is the fact that meeting with friends to learn how to make money on your investments is a great deal of fun. It’s two types of fun really.
First there’s a kind of fun that comes from seeing something you can learn really pay off. It’s a kind of satisfaction you can’t get from lucking out on a hot stock tip or picking the right mutual fund, although neither situation is a painfully disappointing experience.
The other kind of fun — the one which many reports have shown is far and away the most important benefits of joining an investment club — is the camaraderie and sense of mutual accomplishment that comes from getting together with friends for an enjoyable night out, while working in pursuit of a common goal.
In fact, it’s not unheard of for clubs to last 20 or more years and for members to pass on their interest in a club to their children. Well such instances are rare to be sure they serve to show how life-enhancing membership of a successful club can be.”
Sample Constitution for the Investment Club
- Formation of Club. The individuals signing this constitution are forming an investment Club. The name of the club is ______.
- Purpose of Club. The club’s purpose is to teach its members how to evaluate Securities and to invest members’ periodic contributions of money for their mutual benefit.
- Duration. The club will begin on ____ (date) and will continue to operate until it is dissolved as provided by this constitution.
- Meetings. Meetings of this club will be held at a frequency to be determined by the club. Members will decide on the times and places for the meetings.
- Club dues. Each member must make a monthly contribution to the club. The monthly contribution amount will be decided by a two-thirds majority vote of the members. If a member is delinquent in his or her monthly contributions for a period of more than 61 days, the member may be terminated from the club by a two-thirds majority vote of the members. The terminated member will receive an amount subject to the terms described in Section 13 of this Constitution, less the contributions not paid to the date of termination.
- Administration fee. Each member must make an annual contribution to the club to defray the club’s administrative costs. The annual contribution amount will be decided by a two-thirds majority vote of the members.
- Club structure. By signing this constitution, club members agree to have the club treated as a “modified partnership” for tax purposes under the conditions prescribed by Revenue Canada.
- Management. All club members are expected to participate equally in the management of the club and attend no less than two out of every three club meetings. Club decisions will be made by a two-thirds majority vote of the members required to form a quorum, except as otherwise required by this constitution. A quorum will consist of two-thirds of the members of the club. A member who is absent from a meeting may vote by signed proxy assigned to a member attending a meeting.
- Officers. Club members will elect by simple majority vote the following officers of the club
-A president who will chair all meetings.
-A vice-president who will do the president’s duties in the absence or incapacity of the president.
-A secretary who will keep the club’s records and prepare written minutes of meetings and decisions of the membership
-A treasurer who will establish and maintain a bank account and an investment dealer account in the club’s name and make monthly reports on the club’s financial position to the members. The club may name one or more officers in addition to the treasurer to have authority to withdraw funds and execute orders from the club’s bank and brokerage firm account. The treasurer will keep a written account of the club’s transactions, which any member can examine. The treasurer will prepare and distribute to members, according to the time limits prescribed by Revenue Canada, all appropriate documentation required for reporting income tax liabilities, including keeping and maintaining an adjusted cost basis account for each member.
Officers will carry out other duties normally associated with their positions or as directed by resolution of the membership.
Officers will serve for terms of one year unless otherwise prescribed by resolution of the membership and until their successors are elected. Any officer may be removed by a two-thirds vote of the entire membership during his or her term of office.
10. Investment dealer. Club members shall vote to select an investment dealer or securities broker to execute orders placed by the club’s authorized officers. By resolution, the members will designate the club’s officer or officers authorized to buy and sell securities through the dealer or broker. The dealer or broker or may rely on the resolution until it was modified or rescinded in writing. Stocks, bonds and securities the club owns will be left with the broker or dealer to be held in “street name” for the club’s account. Any corporation or transfer agent called upon to transfer any securities to or from the name of the club is entitled to rely on instructions or assignments signed by a designated officer or officers of the club without inquiry as to the authority of the person(s) signing such instructions or assignments, or as to the validity of any transfer to or from the name of the club.
11. Compensation. No officer or other member shall be compensated for services given to the club, except for reasonable and necessary club expenses authorized by a vote of the members.
12. New Members. The club may admit additional members at any time by unanimous consent of all members, so long as the total number of members is not more than 25. As a condition of membership, all members agree to be bound by the terms of this constitution and by all resolutions adopted or to be adopted by a vote of the members.
13. Withdrawal of Members. A member may withdraw from the club at any time. Death or legal incapacity of a member will be considered a voluntary withdrawal. A withdrawing member must give written notice to the club’s secretary or any other officer. The effective date of withdrawal will be as of the next regularly scheduled club meeting, which will also be the date for valuing the withdrawing member’s interest in the club. Between receiving the withdrawal notice and the subsequent withdrawal valuation date, other members made buy, in proportion to their membership interest in the club, the interest of the withdrawing member. Club members may, during the same period, agree by unanimous consent to sell the withdrawing member’s interest in the club to a new member who has not yet established an interest in the club. If the other members decide not to buy the withdrawing member’s interest in the club, or sell the interest to a new member by the valuation date, the club will use cash on hand or sell securities to pay the withdrawing member the value of his or her interest in the club, less the cost of selling securities to obtain the cash necessary to meet the withdrawal. The withdrawing member shall be paid in cash, but without interest, not later than ninety (90) days after the valuation date.
14. Nonassignability of Member’s Interest. No member may assign, transfer, pledge or hypothecate his or her membership or interest in the club, in whole or part, and any attempt to do so shall be construed as such member’s election to withdraw from the club.
15. Amendments of Constitution and Dissolution. This constitution of the Club may be amended or the club may be dissolved upon a two-thirds affirmative vote of the entire membership at any regular or special meeting, provided that written notice of the proposed amendment or proposed dissolution has been given to each member at least fourteen (14) days prior to the meeting. On dissolution, all the club’s debts and expenses will be paid first, and the club’s remaining assets will be distributed to the members in cash or in kind, or partly in cash and friendly and kind, apportioned in accordance with the membership interests of the members.
IN WITNESS WHEREOF, the founding members have signed and executed this Constitution of Club the _______ day of _______, _______, at _______ (City and Province) _______.
_________________________
1. Name
_________________________
Signature
_________________________
2. Name
_________________________
Signature
_________________________
3. Name
_________________________
Signature
_________________________
4. Name
_________________________
Signature
_________________________
5. Name
_________________________
Signature
_________________________
6. Name
_________________________
Signature
_________________________
1. Name
_________________________
Signature
_________________________
7. Name
_________________________
Signature
_________________________
8. Name
_________________________
Signature
_________________________
9. Name
_________________________
Signature
_________________________
10. Name
_________________________
Signature
Note: All founding members must sign this document.
Investment Questionnaire
Please complete this questionnaire frankly and fully. Your answers will help our club develop a sound investment policy and ensure that the club meets the expectations of all members.
How would you describe your investment experience and knowledge?
Know nothing
Know a little
Know a lot
Expert
Which of the following investments have you personally bought in the past?
GICs
CSBs
Mutual funds
Stocks
Options or futures
How would you describe your investment personality?
Very conservative
Conservative
Aggressive
Very aggressive
If the club makes some bad investments, how much of your money would you be prepared to lose?
All of it
Three-quarters
Half
One quarter
None of it
If you had the choice, which of the following would you choose?
100% chances to win $100
50% chances to win $1,000
10% chances to win $10,000
1% chances to win $100,000
Which of the following investments should our club consider buying (choose no more than two)
Mutual funds
Stocks
Bonds
Options
Futures
How much should each member contribute to the club at each meeting?
$15
$25
$50
$75
$100
Should members be allowed to contribute different amounts?
Yes
No
Don’t know
Please indicate which of the following club positions you are interested in holding?
President
Vice-President
Treasurer
Secretary
None
Have you belonged to an investment club before?
Yes
No
How often should the club meet?
Every two weeks
Monthly
Every two months
Quarterly
What times would best suit you for club meetings (please write day of the week and time of day)
Your answer
Name
Your answer
Your answer
Cell Number
Your answer
Submit
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Hope this is helpful!
