If you're interested in investing in the stock market but don't know where to begin, start with an investment club. These clubs allow interested people to learn--as a group--invest money and track the results. They're easy and fun to organize, and the knowledge members acquire about investing will prepare them to manage their own portfolios in the future.
Instructions
1. Sign up with the National Association of Investors Corporation. The NAIC has helped individuals start clubs for nearly 50 years. It has loads of useful information, such as manuals for managing clubs and sample agreements, as well as a monthly magazine and tools for studying stocks. The Investment Clubs Guide can also give you more information (see Resources).
2. Find and organize your members. Start a club that meets in person or one that convenes online. Spread the word about your intention to start a club as widely as you can. Having something in common is an important fact to consider--draw from family, friends, co-workers and fellow students. Limit the membership to 12 to 15. See 373 Plan an Organizational Meeting.
3. Set a minimum monthly fee that each member is expected to contribute--for instance, $20 to $50. Some clubs set an initial contribution a bit higher to cement each member's commitment to the club. Each member's return is determined by his or her contributions to the club.
4. Make sure all members understand and agree on investment strategies before you even begin. Your club must have a unified purpose--it will not be successful if some members prefer shortterm strategies while others want to buy and hold stocks. Every member should expect and want to participate actively in the club's research and responsibilities.
5. Create the club's bylaws or rules. Select club officers and set committees to oversee club activities, serve as a cosignatory, to collect dues and maintain all the financials and tax forms. The NAIC has suggestions for filling these positions in its guide.
6. Determine whether your club wants to work with a stockbroker or go it alone. If you go it alone, check out discount online brokerage houses, such as Charles Schwab or TD Ameritrade (see Resources). If you do work with a broker, designate one member to deal with him or her in executing buy and sell orders. Someone needs to take care of bookkeeping; the NAIC-provided guides and software make this job easy.
7. Look for a brokerage house with a good reputation and low trading costs. If all members are investment novices, consider using a broker for the first year or two until you get your sea legs, then switching to a discount broker to go it alone.
8. Conduct and use good research. Use online services, such as Yahoo Finance, Motley Fool and Morningstar (see Resources). Follow the progress of a particular stock or family of stocks that the club is considering for purchase. The NAIC's guidelines and corresponding software can help you flush out the best stocks to buy. Get as much information about the stocks as you can and make sure all members share this information. Go to the library and reference Value Line reports and Standard & Poor's financial reports.
9. Use your computer. The NAIC sells accounting software for clubs that simplifies record-keeping, as well as investment software that makes it easier to find hidden gems. Find other ideas online. Email and chat rooms are great ways of communicating with each other, especially if you are part of an online club.
10. Be patient. It will take a couple of years, based on the ups and downs of the stock market and the economy, to see your investments grow. Members should consider both the club and its investments a long-term commitment, and the club's contract should include some sort of clause and even a small penalty that addresses what happens when someone withdraws funds early. Most clubs work best if members take a buy-and-hold approach to stocks. This means members are committed to buying stock from a solid company with the intent to hold it for five years or longer. This approach rides out the market's ups and downs and keeps trading costs and taxes minimal.
