Membership

Who should join?

One of the first steps is to decide who else should be invited to join the club.

  • Most investment clubs start as a result of 3 or 4 friends or work colleagues deciding to form a club.
  • The importance of getting the right mix of people cannot be overstated. Research by the National Association of Investors Corporation (NAIC) in the United States suggests that a significant number of investment clubs fail within the first eighteen months because of conflict between members who are long-term investors and those who believe in short term, speculative trading. Differences in commitment and willingness to participate can also be a source of conflict.
  • A common investment philosophy and enthusiasm for the investment club ‘process’ are essential ingredients of a successful club.
  • Investment club finances are also much less complicated if the club membership is stable. It is therefore vital to spend time ensuring the right people join your club. You can take time recruiting members while the initial group works on matters such as the proposed structure of the club and the investment strategy.

How many members?

  • Our research indicates that most clubs have between 5 and 15 members.
  • The club should have enough members that there is a sufficiently diverse range of viewpoints represented. Remember, too, that at most meetings there will usually be a small number of members who are unable to attend. The group should be of such a size that every member has the opportunity to express their opinion on an investment decision. If there are too many members, this requirement becomes difficult to observe.

Legal requirements

  • The requirement for every member’s voice to be heard is important for another reason. If some members do not actively participate in the decision making process, then those members who do actively participate may be regarded as advising those who do not, and under current legislation would require an Australian Financial Services Licence (AFSL).
  • An additional consideration is that if a club has more than 20 members, it becomes a Managed Investment Scheme which must be registered with the Australian Securities and Investments Commission (ASIC).
  • The number of members may also be influenced by the proposed venue for meetings. This is particularly relevant if you decide to meet in the homes of club members, where room size may be an issue.

Who should the members be?

The strength of a club is in the knowledge and enthusiasm of its members. Careful consideration should be given to who is invited to join. Some of the most important factors are:

  • Investment philosophy: it is vital that members share a basic approach to investing. If half your club is made up of ‘buy-and-hold’ investors, while the other half are dedicated day traders, your club’s chances of success are minimal. Be sure to discuss investing style with potential members.
  • Diversity: while a common approach to investing is essential, it is preferable for the expertise of your membership to cover several sectors of the sharemarket. This will help generate new ideas and encourage stimulating discussions at club meetings. It is also wise to choose people with varied interests and backgrounds and with experience in a wide range of jobs.
  • Level of financial commitment: all members need to be comfortable with the financial commitment required. Most clubs involve a monthly subscription, and possibly an initial lump sum payment to enable the club to make its first investment quickly. All members need to be happy that the subscription level is within their means.
  • Enthusiasm/attitude: an investment club’s success depends on more than the financial contributions of its members. Members need to attend meetings on a regular basis, and participate actively. An investment club is a forum in which you can not only learn from others, but also contribute something of your own. The requirement for all members to actively participate in the decision-making process is important from a legal perspective.

Participation extends beyond the club’s regular meetings

While these tasks should not be too time-consuming, each member should be willing to take on their fair share. See what happens between meetings.

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