Starting a Family Investment Club: A Collective Approach to Wealth Building
Written by
Sean Bryant
Edited by
T. Woods
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If you’ve been considering joining or starting an investment club with your family but are unsure if it’s the right move, you’ve come to the right place.
Investment clubs can be a powerful tool for learning from like-minded individuals. They not only enhance your financial literacy but also empower you to make informed investment decisions. By pooling your resources with your family, you can collectively grow your investment portfolio and net worth, fostering a sense of confidence and control over your financial future.
Keep reading as we discuss why you might want to start an investment club and the steps you’ll need to take.
Why You’ll Want to Start an Investment Club?
One of the biggest reasons people choose to start an investment club is that they want to learn and share ideas with people who share their values. It makes sense to start an investment club with family members because, most of the time, your values are well-aligned. Yes, you may have different opinions, but your values are generally on the same page.
Investment clubs can be a great way to learn about investing. Because some members may be more seasoned investors, they can share their knowledge on certain topics.
Investment clubs used to be a great way to share the expenses associated with investing. However, with the rise in so many commission-free brokers, the fees for making a high volume of trades aren’t as big of a deal.
How to Start an Investment Club
If you’re ready to get your investment club with family off the ground, you’ll want to follow these steps to ensure success.
1. Find and Organize Members
Finding members for an investment club is generally one of the most challenging steps. However, it’s a little easier if you’re looking to start one with your family. Either way, ensuring the fit is correct before jumping in is crucial.
Most investment clubs will have at least 5 people but no more than 15 or 20. You must have enough ideas, but too many can make things more difficult. Each person will be required to make an initial investment, say $500 or $1,000. Then, each month, a lower investment will be required. Most clubs stick with a $50 or $100 monthly investment.
Before extending an invitation to different family members, ask yourself a few questions. These will help you see if it will be a good fit.
- Do you trust the person you’re thinking of inviting?
- Will they bring research and ideas to the meetings?
- Are they organized?
- Are they going to pay the monthly investment on time?
2. Determine Your Goals
Once you have your members set, you must agree on your goals. Most clubs’ goals will be making money and learning from others. But how are you going to get to that point?
It’s important to take some time to understand each member’s investing approach. Are they willing to take on more risk or prefer to be more conservative? Do you want to stick with equities, or are members interested in alternative investments as well?
Developing a plan of attack and ensuring that each member is on the same page will be vital to success.
3. Choose a Legal Structure
Setting up a legal structure for your investment club is important because hopefully over time, your investments will grow into a significant amount of money. Having the necessary legal protections is going to be important. Plus, some online brokers are going to require your investment club to have a legal entity before opening an account.
Most investment clubs choose to establish either a Limited Liability Corporation (LLC) or a Limited Liability Partnership (LLP). This will also allow your investment club to attain an Employer Identification Number (EIN).
Once you have filed your legal documents, you’ll need to open your brokerage account, where you’ll make trades. No matter which broker you choose, you must provide them with your legal paperwork and EIN.
The Bottom Line
Investment clubs are a great way to pool your investment funds and learn from other members. Just be sure that you join a group where everyone is willing to listen to ideas and pull their own weight within the club.
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