• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Wealth Pilgrim

No Money Worries. No Matter What.

Neal Frankle featured in
  • Home
  • Life Insurance
  • Investing
    • Build Strong Investment Building Blocks To Avoid Going Broke In Retirement
    • Systematic Mutual Fund and ETF Investing
    • Stock Market Investing Guide
    • Choosing the Right Investment Brokerage Guide
    • How Bonds Work Guide
    • How Banks Really Work Guide
    • Annuities – What You Need To Know Before You Invest
    • A Beginners Guide To Buying Individual Stocks
    • Create A Pool Of Great Mutual Funds and ETFs To Pick From To Secure Your Retirement
    • ETF and Index Fund Investment Guide
  • Earn More
  • Banking
  • Retirement Planning
    • Retirement Guide
  • Ask Neal a Question
  • Reviews
    • Upgrade Personal Loans Review
    • Lending Club Review
    • Prosper Review
    • Ally Invest TradeKing Review
    • CIT Bank Review
    • LegalZoom Review
    • Lexington Law Review
    • Airbnb Host Review
    • Should You Drive For Uber?
  • Tax
  • Courses
    • Raise Your Credit Score So You Can Buy a House – Free Video Course

Is It Smart To Join An Investment Club?

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

Have you ever considered joining an investment club? Two heads are better than one….right? Using that logic, 5 or 6 people (or more) must be a brilliant way to invest. Right?

Well……..joining together with others can have huge benefits. But there are some dangerous pitfalls to be aware of as well. Let’s take a look under the hood of investment clubs, shall we?

What is an investment club?

An investment club is just a group of like-minded people who share one common goal – to ultimately make money investing. The members of the club meet regularly and discuss investment ideas and decide how to invest their pooled assets.

It’s important for you to understand what “pooling assets” is. This means you each put in a certain amount of money and have shares in your investment club account. If the total contribution is $10,000 and you contributed $1,000, you own 10% of the fund. This is similar to how a mutual fund works. Not every club pools assets but most do. Those who do not simply meet to discuss investments and each member invests as he or she chooses. It’s important for you to learn how your club handles the capital. Let’s keep going.

What to ask before joining or creating an investment club.

The most important benefit of getting involved with investment clubs is the ability to learn about investing without being judged or taking much risk. This is especially important as the club just starts out. If the members are exclusively focused on making big scores in the beginning they will undoubtedly take too much risk swinging for the fences. The typical result of that is striking out in most cases unfortunately.

So if you decide to join a club, find out what the objectives are and make sure they track with yours.  While you’re at it, make sure you understand what the investment approach is too. Some groups look for short-term wins while others invest for the long-term. Either approach can work – as long as the members agree. If this club invests in a way that is counter to your objectives, find another club.

Just keep one thing in mind, according to the National Association of Investment Clubs, the groups that plan on holding stocks for at least 5 years or more do far better than clubs that focus on shorter time periods.

While you interview clubs, ask how long they’ve been around. I would focus on those groups which have been around at least a year or more. If your club has survived a year it’s a good indication that it’s worked through its problems and could have a well-articulated investment approach.

Try to examine the attendance records at the same time. If nobody shows up to the meetings how are you supposed to learn anything? Make sure the meetings are well attended before signing up Pilgrim.

As a potential new member find out how the club handles it’s accounting. How are additional deposits handled? What about withdrawals? Rather than joining a club that has equal shares for all members, look for a club that provides unit values so people can add and take funds out. If the club gives unit values to members it’s far easier to have unequal contributions.

Bottom Line on Investment Clubs

If you are a novice investor, an investment club can be a smart way to go. I strongly suggest that you keep your contributions to a minimum. The main goal of being in the club is to learn – not to make money. In fact, according to NAIC almost 60% of the clubs out there don’t even match the return of the S&P 500. Still, it’s a wonderful place to learn about investing – and make mistakes where it doesn’t cost you much when you do.

Are you interested in joining an investment club? Have you ever been a member? What were your experiences?

Tweet
Pin
Share5

Reader Interactions

User Generated Content (UGC) Disclosure: Please note that the opinions of the commenters are not necessarily the opinions of this site.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Are You Human? * Time limit is exhausted. Please reload CAPTCHA.

Primary Sidebar

Who is Neal Frankle

Neal Frankle

I'm a CERTIFIED FINANCIAL PLANNER™ Professional with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
Read More »

Stay Connected

Facebook Twitter YouTube RSS

More Categories

Career Development
College Funding
Credit Cards
Credit Score Fixes
Money and Marriage
Debt Relief
Estate Protection
Property Investment Loans
Small Business Strategies
Spend Less Money

Disclaimer

Wealth Pilgrim is not responsible for and does not endorse any advertising, products or resource available from advertisements on this website. Wealth Pilgrim receives compensation from Google for advertising space on this website, but does not control the advertising selection or content. Please do the appropriate research before participating in any third party offers. The information contained in WealthPilgrim.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation. Wealth Pilgrim does not provide investment advisory services and is not a registered investment adviser. Neal may provide advisory services through Wealth Resources Group, a registered investment adviser. Wealth Pilgrim and Wealth Resources Group are affiliated companies. In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving payments,access to free products and services for product and service reviews and giveaways. Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.


About · Contact · Disclaimer & Privacy policy

Copyright © Wealth Pilgrim 2022 All Rights Reserved