What Is an Investment Club — and Is Joining One a Smart Move?

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Ever wondered what it’s like to invest as part of a team? An investment club is exactly that — a group of people who pool their money, research opportunities and decide together where to invest. Some focus on niche goals like socially conscious investing, while others take a broader approach. Here’s how these clubs work and what you should consider before joining one.

Types of Investment Clubs

There are several ways investment clubs can be organized. Here’s a rundown of the most common types.

Pooled Investment Clubs

In a pooled investment club, members pool their money into a single account, and all of the money in that account is invested in the same way.

• Each member owns part of the account, based on the amount of money they invested.
• Clubs may require all members to agree to every investment, or set a majority vote requirement — for example, 60% or 75% agreement — before purchasing.

Self-Directed Investment Clubs

In a self-directed investment club, each member has their own investment account. They can invest their own money as they see fit, but the club meets to exchange investment advice and stock tips.

A self-directed club may be more competitive and less cooperative than a pooled investment club.

In-Person vs. Online Clubs

Investment clubs can meet either in person or online.

• In-person clubs: Often feel more social and interactive
• Online clubs: Offer convenience and flexibility, but may feel less personal

Formal and Informal Clubs

A formal investment club may have a formal agreement, elect officers, record minutes and have a legal structure.

An informal club may operate on a “handshake,” although it’s wise to have some protections in place, particularly if funds are pooled rather than self-directed.

Social Clubs

Some investment clubs are formed by people who simply enjoy investing and discussing opportunities. These groups tend to focus more on learning and social interaction than on growing wealth and making a profit.

Profit-Focused Groups

Profit-focused investment clubs are set up with the goal of generating returns and making money on their investments.

Pros and Cons of Joining an Investment Club

Investment clubs have both advantages and disadvantages. Here’s a look at both sides.

Pros

• Get advice and input from like-minded investors
• Learn while you earn — others may have information you’re not aware of
• Benefits of investing a larger amount of money than you could by yourself

Cons

• Decisions are made by a committee
• Others may not share your goals or risk tolerance
• Costs associated with starting and running the club

How To Join an Investment Club

Ready to join an investment club? You can start with these steps:

1. Choose your path: You can join an existing investment club or start your own. BetterInvesting is a site that matches investors with clubs and helps people start a club of their own, offering advice and mentorship along the way.
2. Reach out to the club: If you want to join an existing club, contact the leader(s) of the group to ask if they are accepting new members.
3. Attend a meeting: If the club is open to new members, ask to sit in on a meeting. This is the best way to see if the club’s financial goals and expectations align with yours.
4. Evaluate fees and rules: Beware of investment clubs that charge high fees, and those that have regulations that seem excessive or restrictive.

The bottom line? Trust your gut. If a club doesn’t feel right to you, find another one.

Are Investment Clubs Regulated by the Securities and Exchange Commission (SEC)?

The SEC doesn’t typically regulate investment clubs. But if members can buy or sell shares, if it operates like an investment company, or if someone is paid to give advice to the club, then SEC rules may apply.

Are Investment Clubs Worth It?

Whether an investment club is worth it depends on your specific situation. If you enjoy talking — and maybe debating — with others about investment choices or want some confirmation that you’re choosing the right stocks, an investment club may provide that for you. If you prefer to follow your own instincts and invest your own way, it may not make sense to join a club.

John Csiszar contributed to the reporting for this article.

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