Investing for fun and profit

If you happen to overhear a friend or colleague talking about going clubbing, it may not be the clubbing that involves smoky pubs and loud music.  Chances are, your friend could be a serious "Investment Clubber".

Over the last few years, hundreds of investment clubs have started in Australia, as more and more people seek to learn about investing.  Many people find investment clubs an ideal way to start or further their investments.  This movement is not limited to Australia.  Investment clubs have been popular in the UK and US for several years. 

Clubs generally have a simple format.  A group of friends, family or workmates meets regularly – usually once a month.  They each contribute a set sum of money, say $100 per month, which the club members decide how to invest their pool of money through an equal voting system.  Everyone has a job for each meeting such as researching a particular company or sector.  Funds are generally invested via a partnership structure.  Usually each member has a turn hosting the meeting at their homes, or alternatively at the local pub or sports club.

Current investment club members give many reasons for investing as a group.  A core reason is that club members share responsibility for obtaining investment information and making investment decisions.  Investing can be a daunting process if you are starting out by yourself.  The risks and costs associated with investing are shared among members.

Club members increase their knowledge about investing and how to invest successfully. Members share knowledge and benefits from other's experiences.

Similar to being part of an exercise club, being part of an investment club provides members with motivation, support and encouragement.  This increases their knowledge about investing and how to invest successfully, which increases their confidence in investing.

Many clubs have enjoyed financial success and achieved returns above the various market measures.  Perhaps the most famous club is the Beardstown Ladies Club.  Named after their home town in Illinois, over a 10 year period this group of women managed an average return pa of 23%, twice that of the S&P 500 Index over the same period.  That club has a simple philosophy of having fun, learning and making money.

Clubs should be governed by a partnership or unit trust structure.  Generally club members decide to have two signatories for the withdrawal of any funds.  This acts as a safeguard against a member of the club acting improperly with the club’s funds.  Proshare in the UK, which supports over 10,000 clubs, claims they are unaware of any circumstance where this has occurred.

Being in an investment club should be taken seriously, but not too seriously.  Club members generally only contribute a small amount of money each month.  If everyone agrees to buy a share and it subsequently loses money it shouldn’t be the end of the world.  Investments will rise and fall in value and a certain amount of good-natured “I told you so” is part of being in a successful club.

Of course, one of the most important aspects is that clubs can provide you with more time with  your current friends, the opportunity to make new friends, and lots of fun.  Most clubs rank the friendships and networking with other members as an integral benefit.  Most meetings happen over a few beers or bottles of wine.  Some clubs have even gone onto spending some of their profits on a holiday together!

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ASX gratefully acknowledges the contribution of Susan Jackson to this article.   Susan Jackson is Founder and Executive Director of The Women's Financial Network.  The original article can be viewed at the Womens Financial Network website: http://www.womensfinancialnetwork.com.au