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"Four of my coworkers and myself are interested in forming an investment club. Our problem is that we know nothing about stocks or how to set up a club. I am in the process of researching...a good broker, and when and how to buy a stock.... Could you possibly help us or at least direct us toward our goal?" -- S.W. (e-mail sent to Hers.online)
Questions about investment clubs, like the one above, show up in my e-mail box more often than any other topic. An investment club is simply a group of 8 to 15 people who pool their money and buy stocks together on a regular basis. The group is usually organized as a legal partnership (to simplify tax issues) with elected officers. Each member is expected to participate by attending monthly meetings, kicking in a minimum monthly contribution -- usually of $20 or more -- and researching and following a particular stock or family of stocks the club has bought or is interested in.
Although millions of individual investors continue to be drawn to the stock market, many of them don't want to invest alone. So it's no surprise that the number of investment clubs grew 125% from 1995 to 1999, according to the National Association of Investors Corp. (NAIC), a Madison Heights (Mich.) nonprofit trade association for investment clubs and individual investors. "Investment clubs bring together the best of everything," says Beth Hamm, an NAIC trustee in Grand Rapids, Mich., who helps clubs get off the ground. "They're social, educational, and you earn money while having fun."
WOMEN IN THE LEAD. Women are at the forefront of the growth in investment clubs. Nearly 70% of the 650,000 NAIC members are women. That's a huge jump from 1990, when 40% of the 125,000 members were women. What's more, women-only clubs have had an edge in performance. In 1999, women's clubs had a lifetime annual compounded return of 32%, vs. 23% for men-only clubs, according to an NAIC study. Women trade the stocks in their portfolios less often than men, and the lower turnover results in higher returns.
For a bird's-eye view of how one investment club of 10 women beat the market over the past two years, check out www.chickslayingnesteggs.com. The 10-stock portfolio of the Chicks Laying Nest Eggs Investment Club has returned 47.5% from its inception through Sept. 15, vs. 17.7% for the benchmark Standard & Poor's 500-stock index. The club's site, launched on Sept. 5, reveals the members' 12-step investment strategy, portfolio, and communications. The site is gearing up to provide services for other investment clubs, including message boards, portfolio-tracking tools, and a program that matches up prospective members with clubs that meet their investing interests.
Of course, there's no guarantee your club will perform well. But for many people, learning about the stock market in an unthreatening atmosphere is almost as important as beating the market. While staying light on statistics and studies, several Web sites offer step-by-step advice for investors who want to start their own clubs.
CLUB RESOURCES. Perhaps the best known is the NAIC site at www.better-investing.com. This site can help you choose members, set criteria for picking stocks, and keep accounting records. For instance, when selecting members, NAIC suggests you seriously consider the mix of people. Make sure you all enjoy being together, share the same investment philosophy, and are willing to do the necessary legwork to make the club run smoothly.
There are several other things to consider when starting a club. First, limit the number of people to 15 so the group doesn't become too unwieldy. You'll also want to develop a game plan that summarizes the group's investment philosophy, sets an amount for monthly contributions (the NAIC club average is $58), and picks a regular monthly club-meeting time.
And most important, establish a procedure in advance for members who want to cash out. NAIC has a form that shows one way to do this. It's also useful for a club to join NAIC, at $35 a year, or $14 per individual member. In addition to doing research on NAIC's Web site, consider buying the trade group's book, Starting and Running a Profitable Investment Club ($21; 877 275-6242). Though a bit dense, the book provides more detail than the Web site.
WEB TOOLS. A few other sites are entirely devoted to investment clubs. Investment Club Central at www.iclubcentral.com has a comprehensive collection of links, articles, tutorials, and other resources. For example, it includes a survey of nearly 30 online brokers, with their minimum commissions and their policy on charging for direct-investing programs. Another site, Investment Club Doctor at www.investmentclubdoctor.com, offers services such as portfolio analysis and stock-picking tools.
There are not only sites to help you get started but also others that hold forums for online investment clubs -- at no charge. The Motley Fool site, www.fool.com, and Yahoo!, www.yahoo.com, offer message boards for club members and in-depth archives of useful information. A new site, www.bivio.com, provides free communication tools and online software to do difficult bookkeeping and compile tax returns. Along with resident club experts to answer your questions, bivio also has an online matching service for people looking to form a club. You might also take a peak at Women's Financial Network, www.wfn.com, which has a small but growing club and a member-matching program.
Starting and running a successful investment club is a lot of hard work. But it's also the best way to have fun while learning how to make money in the market.
Gutner is the Women & Investing columnist for Business Week. She offers advice twice a month for BW Online Edited by Beth Belton
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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