Starting an investment club is relatively easy compared to other financial activities. You have to form a group of people who are interested in investments. Then you have to set up the organizational structure of the investment club as well as the legal structure. You also have to conduct market research and feasibility studies and decide where you want to invest. If you are planning to form a large investment club then you have to apply for necessary legal documents.
Key Takeaways
- If you want to invest in real estate, stocks, bonds, etc. but don’t have enough funds then starting an investment club is the best option
- You can start an investment club with your friends, family, or colleagues and manage your finances like a real professional
- An investment club is a self-managed organization where each member may help make investment decisions
- An investment fund allows the investors to take the full benefits of the investment which is not possible for other financial institute
What Is An Investment Club?
When a group of people come together and form a club with a view to investing together then it is called an investment club. Usually, an investment club is a self-managed organization where each member may help make investment decisions. Starting an investment club doesn’t require specialized business skills or opening a shop/office. However, you can set up an investment club as a legal entity and have a similar framework as a mutual fund.
Why Create An Investment Club?
One of the main reasons the popularity of an investment club is increasing is because you don’t need lots of money to invest in hedge funds or become an accredited investor before trading money as brokers’ investors. You only need a group of people who are also interested and have the same intention. Moreover, an investment fund allows the investors to take the full benefits of the investment which is not possible for other financial institutes. An investment club also allows the investors to have a diversified portfolio.
13 Steps To Starting An Investment Club For Fun And Profit
1. Understand The Industry
Before starting an investment club, you have to understand the industry and how it works. There are various types of investment clubs available and each type of club has separate agenda. However, the main goal of these clubs is to take a lower risk and try to gain higher returns on investment which is usually between 21 percent and 70 percent. Though investment clubs are not very popular in the USA they are expected to contribute on large scale in near future. In the USA, there is no lower investment limit for an investment club, but the highest investment limit for an investment club is pegged at $25M.
2. Conduct Market Research
If you want to start an investment club then according to your investment mission, policy, and ideology; you have to conduct market research and feasibility studies to determine the type of investment club you should start. You should not allow sentiments to influence the type of people you allow joining your investment club and make sure you accept members who have the same investment intention. For example, if you are working in an office then you can easily convince your colleagues to join you in forming an investment club.
3. What Sector To Concentrate On
Once you decide to start an investment club, you have to choose from various niche ideas. Some popular sectors for consideration are –
1. Stock, Mutual Fund, or Bond Investment Clubs
2. Business Investment Clubs
3. High School Extracurricular Investment Clubs
4. Hybrid Investment Clubs
5. Real Estate Investment Clubs
6. Agriculture (Agro-allied and farming) Investment Club
7. Oil and Gas Investment Club
8. Information Communication Technology (ICT) Investment Club
9. Transportation Investment Club
10. Network Marketing Investment Club
11. Export Investment Club
12. Co-operative and Thrift Investment Club
4. Analysis Of The Competitors
It is very important to analyze the competitors before you start investing. Analyzing the competitors will give you a clear idea of how they operate and where they are investing to make profits. This way you will be able to reduce unnecessary business risks to the barest minimum. Some of the leading investment clubs in the USA are –
1. Billionaire Hustler Club
2. FPS WebinarFPS Trading Suite
3. Just Been Paid
4. Max Returns High Yield Investments
5. MakeRealCashwithJames
6. 18 Wheel Venture Club
7. 1998 Miller Family Investments
8. 2010ad Investment Club LLC
9. 3200 N Central Ventures LLC
10. 3706 Tnt Investors LLC
11. 425 Club LLC
12. 4 Investments LLC
13. 4m Investment Club LLC
14. 524 Putnam Ave LLC
15. Aam Homebuyers LLC
16. Abeam Investment Club
17. Alamo Interests
18. Allison Investment Management
19. Altana Investment LLC
20. Amin Family Limited Partnership
21. Amyg Investment Group
22. A-Plus Accounting & Management Corporation
5. Identify The Possible Threats And Challenges
For any kind of financial decision, it is very important to identify the possible threats and challenges. For example, one of the obvious challenges of starting an investment club is to attract serious-minded people with the same investment ideology, and philosophy. If you are not able to convince a group of people to invest together then you will find it very difficult to start an investment club. Moreover, if there is an economic downturn then there are chances people might want to withdraw their investments and the fund might face the chance of extinction. Moreover, government financial or business policies can also affect the survival of investment clubs.
6. Choose A Legal Entity
If you want to start an investment club then you have to set up a legal structure. If you manage to collect large investments and the investment returns increase over time then you must have to open a brokerage account as a business and run the organization ethically. There are various types of legal entities available but a limited liability partnership will be the best legal entity for the investment fund. Moreover, you have to create a partnership agreement and you can take professional help to form the partnership agreement. You also have to make sure that each member of the group reads the agreement and agrees to it before it is signed and sealed. Then you will need a bank account to secure your money and returns. You have to obtain the EIN (Employee Identification Number) before you can open a bank account with your investment club. You can easily get the EIN online from your state’s IRS website.
Though investment clubs are normally formed as general partnerships or Limited Liability Company (LLC), you can also choose a “C” corporation or an “S” corporation for your investment club. But, before choosing a legal structure you should understand that each legal structure for business has its own advantages and disadvantages. Therefore, you should think properly and discuss with other members of the club and then decide the legal structure of the club. This is the best way to avoid any legal issues in the future.
7. Choose A Name For Investment Club
When you decided about the legal structure of your investment club, the next step is to find/choose a nice name for your investment club. You can solely pick a name or discuss it with the club members and then pick a name for the club. Below are some name ideas that you can check –
1. Bridge Trust Investment
2. Family Fund Investment
3. Capital Gain Management Co.
4. Analytica
5. Value Added
6. Apex Capital Management
7. Prime Investment Partners
8. Royal Assets
9. Stable Growth
10. Expo Management Inc.
11. Joint Venture Investment
12. Enhanced Trust Venture
13. Levitas Banking
14. Infinite Savings
15. Prosperity Investments
16. Platinum Fund
17. One Direction Consultancy
18. GoldBrick Investment
19. Rural Fund Investment
20. People Capital Funds
8. Establish Club Rules And Goals
There is no way you can maintain and improve your investment club if you don’t create club rules and goals. Therefore, you should define the club rules and targets after creating the organizational structure. You have to determine how much each member can contribute financially to the club. Moreover, you have to set up basic buying and selling rules or basic investing rules. There should be a minimum contribution limit and you have to keep accurate track of each member’s percentage share. If members invest differently then you have to set the proportion of the return for various amounts of investments.
9. Pick An Insurance Policy
You will need an insurance policy for your investment club as well as for employees whom you have hired to operate the club. Therefore, you would need some basic insurance policy for the safety of your investment club since you are expected to invest money into various investment portfolios. You can consult with an insurance broker about the appropriate insurance policies for your investment club. Here are some of the basic insurance covers that you can consider for your investment club –
1. General insurance
3. Liability insurance
4. Workers Compensation
5. Overhead expense disability insurance
6. Business owner’s policy group insurance
7. Risk Insurance
8. Credit insurance
9. Deposit insurance
10. Financial reinsurance
11. Lenders mortgage insurance
12. Payment protection insurance
10. Get Professional Certification
You won’t need any professional certification to start an investment club because this industry is open to everyone who has money and the mentality to invest. As long as you know how to manage people’s funds and avoid unnecessary risks, you won’t need any professional certification. However, it is not a very bad idea for you or your club members to pursue various investment-related professional certifications because these certifications will give you a clear idea about financial investments.
11. Get The Necessary Legal Documents
There are some legal documents that you have to collect if you want to start an investment club. They are –
1. Certificate of Incorporation
2. Business License
3. Business Plan (Investment Plan)
4. Non – disclosure Agreement
5. Employment Agreement
6. Operating Agreement for LLCs
7. Insurance Policy
8. Grand Rules / Membership Policy Document
12. Open A Brokerage Account
So, if you want to invest in stocks and bonds then your next step is to open a bank account and a brokerage account to start investing. In order to invest in stocks, you have to choose a broker who would fulfill your requirements. When choosing a broker you have two options: a full-service broker or an online broker; the choice is yours. For invest club, an online broker is the best option because it is cost-effective compared to a full-service broker. If the broker you have chosen is experienced then he/she might be able to educate you on the fundamentals of investing.
13. Start Investing
The final step of starting an investment club is to start investing in various sectors. After completing the adobe steps successfully, you are now ready to invest money and generate profit. You have to look for investment options and can ask the club members to research potential assets and identify the best asset for the investment club. If there are two or more investment options then the members can vote on their favorite choices and make the final decision.
Final Thoughts
Finally, forming the investment club is not the end of your duties. It is the beginning of new responsibilities where you have to call a meeting every week or at least once a month and review the investment, club finances, profits or losses, and other important topics. Moreover, you have to be brave enough to take a risky and bold decision for the investment club. Avoid any kind of unnecessary conflict and keep the door always open for new suggestions, and investment.
References:
1. https://www.profitableventure.com/starting-an-investment-club/
2. https://bestfinancier.com/how-to-start-an-investment-club-for-fun-and-profit/
Last Updated on October 24, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.
