Club together to buy shares
Got time to spare and want a new, sociable, hobby that can make you money? Worried that you don’t know enough to invest on your own? Then start, or join, an investment club. 60% of investment club members are stock market novices when they start off, and over 40% of clubs hold their monthly meeting at a pub!
Investment clubs are a terrific way for those new to investing to learn more about it in a friendly group setting. Many people are terrified of taking their first investing steps. But investment clubs make this a relatively painless experience. Members cough up modest sums and invest carefully together after deliberating over the pros and cons of any action. There are also investment clubs that cater for high-net-worth individuals where entry levels are very steep
Clubs tend to meet once a month for a couple of hours to discuss how to invest in the stock market. The nominated treasurer or chairman may spend another hour or two a month extra. The group’s members – by law there can be no more than 20 – may be family, work colleagues or simply friends
Members decide on a monthly subscription to raise cash to buy shares. With some clubs it’s as low as £10 per member, but more typically the subscription is around £25-£30. The only other expense is the broker charges for selling. It’s often easier to start up your own club with friends who share your attitudes towards stock market investing that it is to join an existing club – most are either full or quite wary of inviting strangers to join them
Details of how to set up and run a club are available from ProShareClubs. The organisation was originally set up by ProShare, a not-for-profit organisation aimed at increasing shares ownership. It’s now run by financial information firm Digital Look. Registration with the organisation is free and clubs can buy a manual for £29. It offers useful guidance and backup
Managing the money
You need to appoint a Treasurer who looks after the buying and selling of shares and a Secretary who keeps records and the minutes of meetings. You then need to fix the monthly subscription and discuss the investment policy.
Your club also needs a constitution, the rules of which every member agrees upon and signs. Often banks or building societies want to see your constitution before they’ll open an account for you
The club needs an account to deposit money, receive dividends and meet any running costs. You can have an account in the name of the club, but you need to nominate two or three people (usually the Treasurer and at least one other person) who can write cheques on behalf of the club. Members then set up a standing order to pay their monthly subscriptions into this account
Deciding what to buy depends on your club’s investment policy. Investment clubs are democratic – each decision is taken by a majority vote. Decide from the start whether you will be cautious investors or risk-takers. You will normally buy the shares through an execution only stockbroker, who buys and sells shares for the club, but doesn’t give advice on specific shares
A share certificate cannot be in the name of a partnership and, technically, investment clubs are partnerships. So shares are held through a nominee company which is operated by a stockbroker which allows its name to be used for the registration of shares. A formal agreement is drawn up between the broker and the club, and two members of the club act on its behalf
You must inform the Inland Revenue when you form an investment club, as with any source of income. At the end of the tax year the club’s treasurer distributes the club’s gains and income equally among the members. Every club member should declare their apportioned share of income or gains received from investments made by the club on their annual self-assessment tax return. The usual capital gains tax exemptions apply and you can find out more from the Inland Revenue’s investment club section
The rules for leaving the club will be in the constitution, but usually you will have to give three months’ notice before you can withdraw your money. The amount you get is calculated by multiplying the number of shares being sold by the current value, deducting brokerage fees and adding any surplus cash to your credit
Many members eventually find that the clubs guide their own personal investing. After a while, their equity in the pooled club account may be relatively small compared with their separate personal accounts. Club meetings will offer many good ideas about attractive shares in which to invest — and while the club may buy a few shares, members often go home and buy more shares for their own accounts
Here are some good reasons why you should consider starting or joining an investment club:
– If you’re new to investing, it’s a good way to get your feet wet
– If you’d feel more comfortable learning about investing with others than on your own, then this is for you
– If you’ve been putting off learning about investing and sense that having a responsibility to the group would provide some much-needed discipline, than a club could help immeasurably
– If you think it would be fun to have a group of people with whom to share company research and discuss investing topics
– If your family have gently suggested that it would be good for you to get out of the house once in a while!