Standing around the water cooler (or the snack machine) with your fellow employees at work, you hear them going on about the relative virtues of their stock clubs, comparing one to another and clearly enjoying themselves. You wonder why no one has asked you to join their clubs, and then you discover what they are all talking about.
Stock clubs, or investment clubs, are for anyone to join, including you--as long as you have extra money that is not earmarked for bills, tuition payments, and so on. These clubs have gained enough popularity that many can be found on college campuses, and some graduate schools promote their investment clubs as extracurricular activities.
But first things first. Before investing with a club you have to look at your finances carefully and understand your current long-range plans. One of the possible obstacles to your joining a club would be if you have a heavy load of debt, as you could lose money before earning any. If you are having difficulty sorting out your financial obligations, you could turn to your tax preparer or accountant for help.
Okay. So what exactly is a stock/investment club? Quite simply, it is a coalition of individuals who pool their funds and buy stocks that might otherwise be beyond their means. They are typically social groups of like-minded people who want to see their money grow. They are informative because they generally do a great deal of research before they purchase, and often lucrative, which often leads to financial success for their members.
Considered a small business for purposes of tax returns, an investment club is usually run in a democratic fashion. Members elect their officers--a president or spokesperson, a treasurer, and so forth and they also vote on the stocks, bonds or securities that they want to purchase. They decide how many they want to buy, whether or not they want to sell, and whether or not the interest rate is conducive to a comfortable amount of growth.
In order to be considered active an investment club's membership must all participate in the purchase and sell-off of stocks. Each member usually contributes capital on a regular basis. Like a Christmas Club, some stock clubs require members to contribute $25 a week, for instance; some, as much as $150 a month.
It sounds like a lot of fun and a good thing for the average person with a middling amount of money to invest, right? But remember that nothing is really a sure thing so don't invest what you can't afford to lose!