September 21, 2010
Investment Clubhouse: 4 Things Every Investor Should Consider
Thinking about joining an investment club but not sure if it’s right for you? Investing in stocks is certainly something you don’t jump into without doing some due diligence. And while joining a club could be an opportunity to learn the fundamentals of investing and purchase shares of larger valued stocks, you may also be revealing your financial landscape. Before joining an investment club, here is what you need to take into consideration.
Understand the legal aspects: There’s more to an investment club than gathering with friends or peers and discussing options. In clubs where money is pooled, a legal structure must be established since it is operating as a business. Members of investment clubs can form a legal partnership or a limited liability company or partnership according to NOLO.com, an online self-help legal guide. Any tax liability generated by the club is passed on to the members.
Make sure your goals are aligned: Before you start investing, you must create a list of goals. Understand why you’re investing and what you hope to get out if it. While the National Associate of Investors Corp says that investment clubs should have a goal of long-term growth, the fact is each club determines its own goals and strategies. Are you looking for income investments or long-term growth? Either way, understand what you hope to get out of joining the club, and make sure that your goals and those of your club are aligned.
Split up the work: One of the major benefits of an investment club is the tremendous learning opportunity. Aside from setting up a structure and assigning roles such as secretary and president, work must also be assigned. Members are encouraged to research different investment opportunities such as index funds, REITs, and individual stocks, for example. This gives members a chance to take in more information and gain different perspectives on certain issues.
Research the right club: Aside from making sure the club’s investment goals are aligned with yours, make sure the club is composed of trustworthy members. While most clubs are formed by close friends, family members, or co-workers, if you’re searching for a club, you may be meeting new people you don’t know much about. NOLO.com recommends visiting www.iclub.com to find a club by posting a message on their online Clubhouse Forum. You may also want to try the message board at StockCentral.com, too.