Consider an investment club

 

 

Despite this rosy picture, do not ignore the fact that the success of an investment group hinges on a number of factors you have to get right at the formative stage. The media has been awash with stories of unscrupulous individuals taking off with members’ savings. To avoid this, the group must have ground rules for such initiatives to have a firm footing.

 

With a number of safe guards, you can benefit from the advantage of numbers to achieve your investment plans faster than the option of going it alone.  However, investment clubs should be one of the several means of mobilising funds.

 

For starters, the calibre of membership is critical in the success of this initiative. Carefully select a group of like-minded people from a cross section of sectors and competencies with a high level of trust as criteria.

 

The selection of membership is also crucial if the issue of commitment is to be considered.

 

Most people’s lives are characterised by busy schedules therefore high level of commitment is crucial in compelling members to allocate time for meetings.

 

Once you have members on board, agree on common goals, risks and rewards associated with such groupings and a name.

 

Next is dealing with an operating agreement that spells out the governance structure, which is key, if you are to avoid glitches in future. 

 

The legal document should spell out how the leadership and supporting roles are appointed and the roles and responsibilities therein. These should also indicate the issue of share holding and membership. 

 

It should clearly spell out the rights enjoyed by the founding membership and those members joining at a later stage. This directly relates to the minimum amount to be contributed.  

Some clubs set a minimum amount but allow contributions over and above that amount for investors who want higher returns on investment. In addition, members must agree on how they will handle pay outs and exits.   

 

Another important aspect is to have a vision and a clear strategic plan that is understood by the members. They should be aware that they are investing for the long-term.

 

That’s why selection of members who share this vision is key to achieving this. 

You can be ambitious and look towards achieving robust growth, generate high returns for members or even plan to be listed on the stock exchange in 15 years or less.

 

This strategic plan should spell out your investment goals in the different asset classes both locally and abroad. 

 

While the initial stage of formation can be informal depending on the level of income, it’s important that the group is formalised as quickly as possible. 

 

This will facilitate the process of opening a bank account with signatories that do not allow a few individuals to easily access the funds. You will need Articles of Association to open an account. There should be about three signatories to the account.

 

Members should endeavour to learn from the best, if they are to transform from the traditional savings outfit into a formidable investment group. They have to look around for clubs that they can benchmark against.  

 

It’s also advisable to join the Association of Investment clubs to benefit from expertise and synergies. 

Related to that, your group should create programmes and opportunities to train members to acquire knowledge on investment opportunities and strategies.

 

Take note of the fact that individuals have different risk profiles and investment appetite. To avoid delays in making investment decisions and implementation, all members need to be brought up to speed on issues related to investment strategies.

 

Remember to clearly structure the issue of return on investments. Many people are interested in saving for future consumption. 

While this is good for a start and enhances financial security, the club’s overriding goal should be to invest the savings to get a reasonable return for members.

 

Without an agreement, such individuals may become a stumbling block to club’s ability to grow.