You Can Take It With You

Clubs that let the stocks travel with individual owners

No partnership agreement. No pooled monthly contributions. No shared brokerage account. No tax ID or annual tax filings to prepare. If you’re thinking this doesn’t sound like a traditional investment club, you’re right. A club where members don’t make monetary contributions to a shared club account is referred to as a “traveling investment club.” With a traveling club, members invest on their own. Therefore, if someone decides to leave the club, the common stock he or she buys stays with that individual owner — it travels with the person who purchased it.

It was about five years ago when Beth Hamm, a trustee and West Michigan chapter director of the National Association of Investment Corps. (NAIC), coined the term traveling investment club to describe the “new twist” on a club she was hoping to start in her son’s school. One problem with youth investment clubs is that members rarely stay for more than two years. The flexibility of a traveling club allows students to join, graduate school, and leave the group without creating reams of paperwork, says Hamm. Since there is no single club account with stock to divide, there is no need to create a legal partnership.

In 1999, the Young Investing Millionaires Club in Detroit started out with 20 boys (aged 14 and under). “It took us about a year to get the partnership agreement written up and for all of the parents to approve it,” says Peggy A. Uzzle, who co-founded the club with her husband, Eric, under the direction of Gail Perry-Mason, first vice president of financial services for Fahnestock & Co. Inc. in Grosse Pointe Farms, Michigan. “When we went to get the federal ID number, which is required for a partnership, an IRS agent informed us about the penalties associated with a club if it fails to file taxes on time — $50 per month per club member for every month that you are late. With 20 members, that would have been $1,000 a month in tax penalties,” Uzzle explains. The traveling club was a better alternative. Today, there are about 10 Young Investing Millionaires, including Uzzle’s son, Eric Jr., 14. His goal is to invest $20 a month from his allowance by purchasing stocks through the NAIC’s low-cost investment plan.

Traveling clubs are not just for kids. They are ideal for individual investors who want a supportive group environment in which to learn how to invest, but who don’t necessarily want to deal with the hassles of investing as a group. Such clubs hold monthly meetings, elect officers, and make stock recommendations just like traditional investment clubs. Members vote on stock purchases, but it is up to the individual to actually go out and make the trade.

The key difference between traveling and traditional clubs has to do with accounting. With a traditional club, the treasurer collects member contributions, creates valuation statements, runs an annual audit, deals with bank and brokerage accounts, and assesses late-payment penalties on the club’s delinquent members. Traveling clubs don’t have to deal with

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