The range of investment opportunities available these days is baffling. Potential investors are left confused by financial and investment jargon. If you are a small time private investor who is seeking advice on stocks, mutual funds and investment portfolios, what are the choices before you? You can consider Investment clubs that are economical entities formed by like-minded people who want to share their collective investment ideas, collect tips and collectively invest towards a common economic purpose. Read on to learn more about how investment clubs function.
It is seen that many a time stock analyst recommendations are biased by their investment banking relationships. Wall Street analysts tend to ignore smaller investment opportunities as well as companies who are facing restructuring or spin offs though they might turn out to be extremely rewarding to the private investor. In such a scenario, potential private investors are on the lookout for investment tips and guidance on understanding the financial indices so as to make investment choices that will be lucrative.
A club is an association of persons who share common ideas. Most investment clubs are partnership entities. Investment clubs are formed with the intention of providing members with ideas, tips and guidance for better investment. Collective investment to make profits is one of the primary motives of an investment club. The income or loss made by the club is passed on to the investing members. Such clubs have a core group that makes investment decisions for the entire club. Club members can invest individually too. Investments made by such clubs tend to fall into a long-term slot rather than flitting from stock to stock. On an average a member of an investment club tends to receive 13% return on investment.
Investment clubs are subject to state securities laws. Clubs of this sort are not commercial enterprises but at the same time they do come under federal and state income taxes. Most investment clubs in the U.S are affiliated to the NAIC (National Association of Investors Corporation). This association was formed in 1951 as an education firm. Women members account for nearly 67% of its nationwide patronage. NAIC takes active interest in teaching potential investors to become strategic investment players by learning to analyze common stocks and mutual funds.
Accounting software provided by the NAIC helps in maintenance of records. NAIC began as an experiment to spearhead an investment revolution by demystifying stocks and chalking out strategies for prudent investment and diversification. Today the Better Investing top 100 Index is based on the companies that are most widely held by NAIC investment clubs. This market-weighted index is calculated monthly and has been a vital index for investors since 1986.
Starting an Investment Club
If you haven't found an investment club that has an opening or want to start one on your own, you can do so by picking the right people. Members must be of a similar educational base and preferably of geographical proximity so as to meet regularly. Member collections of an investment club are usually pooled as capital to buy stocks.
Every investment club has its standards and policies regarding investments. There are different investment strategies that can be followed. An investment club would do well to set up a message board to help members stay in touch and carry discussions on relevant topics. The use of powerful communications channel between the members allows sharing of ideas and opinions with fellow shareholders.
For those seeking to gain a firmer foothold in financial investment opportunities and understanding how the market moves, there is no better learning ground than an investment club. Learn to appreciate the mechanics of stock selection and understand financial terminology by wielding analytical tools.
Find out how to study different company policies and products to be able to make an informed investment decision. The strategy followed by investment clubs is aimed at long-term appreciation. Investment clubs are not the right place for those setting out to make a killing on the stock market in the shortest possible time. The flip side of the coin is that members of a club may become biased against financial professionals who can advice them on an appropriate investment portfolio.