Finding The Right Fit

Want to avoid the hassle of starting your own club? Join an existing one.

Three years ago, Andrea M. Stuckey wanted to join an investment club to expand her awareness of investing and multiply her earnings. She learned that the Southside Women’s Investment Club Chapter 7 in her hometown of Petersburg, Virginia, was looking to increase its membership. The club was established in 1996 by a grandmother, her three daughters, a grandchild, and several cousins, and one of the daughters invited Stuckey to join.

Much like a prospective college student audits a class, Stuckey attended one of the club’s regular monthly meetings. She learned the history of the club and reviewed the group’s bylaws and partnership agreement. She saw firsthand the club’s process for researching and selecting stocks. The 32-year-old x-ray technologist also asked questions about dues payments and the group’s long-term goals.

After a month, Stuckey joined the club because she saw the mix of younger and older members as a plus, and she liked the types of stocks they had purchased. She paid $600 to become a member (the total amount each member had invested up until that point). Monthly dues were $20 ($25 as of this year); she learned she would be responsible for circulating investment education materials among members; and the group had a long-term commitment of 10 to 15 years, at which point they would either cash out or give themselves each a portion of the portfolio and reevaluate the club.

When joining an established investment club? For starters, make sure you agree with the club, Carolyn W. Robinson, who helps new clubs get started and is the founder of an 8-year-old investment club in Richmond, Virginia, says consider: “Are they conservative, moderate, or aggressive investors? What is their portfolio’s track record compared to the major indices (such as the S&P 500)? And will your personality gel well with other members’?” She also suggests you attend at least three meetings before deciding to join a particular club.

Robinson points out that some clubs may require you to “buy out” an exiting member so that the group won’t have to sell any of its equity holdings, or they may require you to “play catch-up” by making larger monthly payments. “This can be a substantial amount of money, depending on the number of years the club has been around,” she explains. Other clubs may ask for a joining fee (say $100) and require monthly dues going forward. “Doing it this way, as a new member coming in, you will get a lower percentage of the club’s overall portfolio earnings.”

Joining an existing club means giving up input into club policy in favor of preestablished operating procedures that allow you to immediately get to the business of choosing investments. Another important benefit of joining an established club is that the knowledge base of investing is generally greater.

So, how did Stuckey do with Southside WIC? The market downturn and the bail out of three of its 14 members in 2000 hurt the group substantially. The club sold some securities to pay exiting members and lost future investment

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