“Esusu” is “a fund to which a group of individuals make fixed contributions of money at fixed intervals; the total amount of money is assigned to each member of the group in rotation”. William R. Bascom. This traditional credit association usually referred to as a “contribution club” has been in existence in West Africa for decades, and is still widely practised today. It has also been recorded in Trinidad where it is known as “Susu” and can be traced back to it’s Yoruba origin.
More formal investment clubs have been growing in popularity all over the world largely due to increased interest in the stock market. They offer their members a way to pool funds to invest as one entity in a variety of instruments including bonds, mutual funds, stocks and real estate.
As we look for ways to educate ourselves about investing, one can benefit from the support and encouragement of “like minded” people, often groups of friends, or colleagues, who have expressed a similar interest in investing. One of the benefits of an investment club is the learning opportunity it provides through the sharing of knowledge and experience amongst members. As the group becomes more knowledgeable, the quality and challenge of investing becomes more exciting.
Through presentations, seminars and assigned readings on related topics, members will be educated on the options available and learn the basic concepts of investing, the different types of securities, investing styles and strategies. There is also a plethora of investment ideas and information in the media.
An investment club can provide a vehicle through which those with limited funds can have access to investments that may otherwise be beyond their capacity. Not only can pooling money create better investing opportunities, but members save on transaction costs by sharing the costs and fees associated with buying and selling stocks as a group.
There are several steps involved in setting up and running an investment club. Here are some tips to help you along.
It is common to have between 5 and 20 members who have diverse interests and experiences but some are much larger in our communities. If the group is too small, you may not accumulate enough money to make significant investments. Yet, if there are too many people, it can become unwieldy and awkward to have regular meetings or to reach a consensus regarding investment options. A balance between some novice investors along with some experienced investors will ensure that you have the right mix of people.
Money matters can damage relationships so it is important that an investment club is formalised; proper structures should be put in place to guide the club’s activity. An investment club isn’t just a group of friends who come together to invest; it is a formal organization with members who have rights. Be sure to agree on the clubs legal and operational framework and all members must understand the risks involved before committing.
A common investment philosophy and an adherence to its processes are essential ingredients for a clubs’ success. Individual risk profiles and financial situations vary; members who are more aggressive short-term investors or speculators may not partner well with the more conservative members who are satisfied with long-term capital appreciation. Members should have similar or at least compatible investment goals.
A preliminary meeting will help everyone to determine if they can work together and will help to articulate the commitment expected from participants. Members should agree on a name and set guidelines as to how the club will be organised and run with all the attendant responsibilities.
Officers should be elected early on as it is important to be clear as to who does what. Typically, a Chairperson presides over meetings and a deputy in their absence. The Club Secretary keeps a record of minutes, and sends out reminders of upcoming meetings whilst The Treasurer coordinates financial matters relating to subscriptions, and keeps records of the club’s holdings as well as each individual member’s share. The ability of this member is critical to the success of the club so this role must be selected carefully.
Limit the amount of time each member can hold a particular role. This will enhance the experience of individual members, make them feel more involved, and will also diminish the chance of certain members becoming too controlling.
Your bank or stockbroker will require an agreement or Articles of Incorporation to open an account in the clubs name. The agreement will provide a record of when, where, and how often the group will meet, list the necessary roles for operating the group, initial membership contributions and ongoing dues. It will also state how the club will manage new membership, payouts, divesting from or dissolution of the investment club. This vital bit of paperwork is absolutely essential to protect yourselves should things not work out. All members must be in agreement of the terms and should sign off accordingly.
Investment clubs typically meet monthly to discuss investment options, and to make investment decisions. It is important to review club financials, individual investment progress and any cash balance available for investment. Meetings should hold in an appropriate venue with few distractions and should follow the formal meeting process; it is important that meetings are run efficiently so that they don’t become tiresome.
Members should be comfortable with the level of financial commitment required so that no one is hard pressed to come up with the monthly minimum contribution. Small investments may frustrate investors who want to commit larger amounts of cash in the hope of seeing a larger return. Some members may fall short on occassion as unexpected expenses come up, and a large monthly contribution may eliminate members over the long run.
Your investment club contributions shouldn’t be the only investment you are making. You should also be contributing to your Retirement Savings Account (“RSA”) and building other independent personal savings and investments.
Investing is a long-term pursuit. It is impossible to time the market accurately and to pick winning investments all the time, so make sure your club is prepared to stay the course and weather the inevitable storm of market volatility. When an investment club is properly set up and run, it can provide a supportive atmosphere that can make investing a lot of fun.
Photo Credit: bvonmoney.com
Nimi Akinkugbe has extensive experience in private banking and wealth management. She is passionate about encouraging financial independence and offers frank, practical insights to create a greater awareness and understanding of personal finance and wealth management issues. She is married with 3 children.Find out more via www.nimiakinkugbe.com