The Basics of Starting Your Own Investment Club

As you’ve travelled through life, I’m sure you've encountered some surprises along the way. The average life goals of growing up, getting a degree, finding a job, falling in love, getting married, having children and retiring may not have happened in that order (if at all). Instead, you probably had to adjust some goals along the way, but thankfully, if you had a support system, setting off on a new path seemed much more possible.

This is also true of investing. Your simple goal of: “I’m going to invest” may have also sprung some surprises on you; surprises that made you adjust your portfolio or question your investment ability. Luckily, if you have an investment support group, you can succeed and reaffirm your investment tactics with others.

This is where investment clubs can really help. In our series on investment clubs, we’ve already looked at joining an existing investment club. But what if you can’t find one close or just can’t find one you like? Simple: start your own! Let’s look at some basic steps for setting up an investment club.

Set Goals

In your new club, you and your members should establish some basic principles. First, all members should be dedicated to continuously learning about investment principles. Next, since investment options will constantly change, they will need to be reevaluated on a regular basis, all in relation to the needs of the group and the realities of the market. Finally, all members should be dedicated to the longevity of the group; investing is a life-long process, and every member really should be in it for the long haul.

Formulate a Plan

After you have set goals, you should decide on a club plan. Determine what activities will be best for your meetings, how you plan to attract members, and how many members should be in the club. Also, you could decide if your club will be restricted to women only and if members will need to contribute a minimum amount to join. Ironing out all of these details as soon as possible will help all members get on the same page.

Decide What You Are

Next, you should decide what kind of entity you want your club to be. Do you plan to meet together from time to time to check up on each other’s dealings in the stock market, or do you actually want to create a corporation or partnership? Some states consider investment clubs “securities,” and as such, there are state filing requirements. Always check your state’s laws before starting an investment club.

Set Rules

After you decide your club’s focus, the first order of business should be rule creation. These are the “Bylaws” or the “Operating Agreement” for your new business entity, er, investment club. In these bylaws, you should mention the specific purpose (or action statement) of your club. Also, you should expressly write down all processes within the club, like voting rules and practices and membership dues and responsibilities.

Bylaws can become complicated and your club may be considered a security in your state (as mentioned above), so I highly suggest contacting an attorney to write these for you. You can draft them as a group, but since they need to be legally enforceable, let an attorney give the final word.

Another great reason to contact an attorney is that you will be dealing with people’s money, even if in a roundabout way. Anytime you will affect a person’s (or multiple persons’) ability to support and provide for themselves and their families, you want to protect them and yourself. Therefore, hire an attorney to ensure that all the liability issues are squared away before you and your group members invest a single penny.

Establish a Club Name and Elect Officers

The club name may not sound like the most earth-shattering decisions you will make, but deciding on a name can either pull members in or encourage them to stay away. So figure out something catchy and vote on it. While you’re at it, you could also vote on the officers, like the president, vice president, treasurer and secretary.

That’s it! You’ve just started a great investment club. Now it’s time to hold your first official meeting, discuss investments and recruit new members. Who are you going to invite to join first?

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