Monday, 7 June 2010

Money Matters #9 - Join the Club

I realise that I haven't written one of my Money Magazine inspired financial entries for some time. Since just before the twins arrived in fact. I wonder why? This post must be a sign that things are starting to get easier around here. Either that or I am looking to escape... As always, I write this kind of post so that I can archive the information without having to keep the magazines. I just tossed a whole pile of old magazines when I de-cluttered my bookshelf last week (all containing valuable "I'll look at that again later" articles). I decided I don't have time to look at them, so they are gone.

 

 
Last month's magazine ( I have a subscription again so please beware!) has dragged the little capitalist out of me once again. The theme of the magazine was getting rich with family and friends. I'm not really into that sort of thing, although a younger me was willing to try it. Ask my sisters and brother about our pact to buy property in Melbourne in the mid-90s (when I got back from my year living there and decided it would be a great place to buy). Shame I was the only one who could't come up with the $10K we agreed to. It would have been a great investment for all of us. I watched on, miserably, as Melbourne property prices soared, without our piece in the pie.

 

 
Any hoo.

 

 
The magazine contained an article by Susan Hely on Investment Clubs that I want to share. I like the idea of an Investment Club, more as a hobby than a money-making venture. Have you thought about it? A bit of competition for the book club? or stitch 'n' b*tch?

Setting up a club. How? Why?
  • You need like-minded friends, with similar money goals - the secret to success is to share an investment philosophy with your team. Apparently Investment Clubs usually have a life-span of about 18 months due to conflict between short term and long term investments! If you want yours to last, you need to really match the people at the get-go, and try not to take disagreement with the group personally.
  • A major advantage is that you can start with a small amount of money.
  • By sharing the costs, you keep expenses at a minimum and you also share the risks.
  • It is a great way to learn about investing - the sooner you start the more you will learn. There are plenty of lessons in volatile markets!
  • You don't need prior experience.
  • Pooling resources provides greater investment choices and means you can develop a diversified portfolio much sooner than you would be able to manage on your own.
  • Every member contributes an agreed amount up front, and tops it up every month with a regular contribution e.g. start with $250 each and contribute another $50-$70 a month and by the end of the year you will have contributed at least $800. If you have 10 in the Club, that's a kitty of $8000, but a monthly investment that is within most people's reach.
  • Anywhere from 4-12 members is ideal for administration and meetings (share the hosting duties). Everyone should have a role and have to report on their work at each meeting e.g Chairperson, Secretary, Treasurer, as well as electronic trading of shares, researching shares and managed funds, and much more.
  • The Australian Securities Exchange has lots of information about how to set up a club or you can look at http://www.themoneyclub.com.au/.



Rules for operation
  • You can write your own Club rules - it works a bit like a Book Club in that sense.
  • You could get experts to come and speak to the group - stock brokers, financial planners or fund managers.
  • You would usually meet monthly.
  • You all decide what you invest in, shares or managed funds or low-cost exchange-traded funds, or all three. Or you can invest in property. Or even art.
  • You could buy blue-chip companies and sit or be a bit more risky and trade in and out of markets. Combining the two different approaches may create problems.
  • Don't be afraid to sell when the investment reaches your agreed level
  • Every member should have the right to vito a decision that they disagree with on ethical grounds.
  • Try to keep some balance in your investments, between low and high-risk shares and between industries and sectors
  • Reinvest all profits and dividends
  • Reassess your strategy annually to see where you are going (rebalance to your agreed level of diversification too)
  • One tricky aspect is paying out a departing member and determining the buy-in of a new member- set this out in your rules/partnership agreement at the beginning
Tax implications
  • Most Clubs operate as a Partnership. You can get a proforma partnership agreement from http://www.asx.com.au/ as well as taxation guidelines. You also need to register a business name (cost is less than $200) and hire a solicitor to draw up the Partership agreement (variable cost).
What do you reckon? Is an investment club for you?

More Money Matters?

#8 - Kids Birthday Parties
#7 - Cutting Petrol Costs
#6 - Saving at the Supermarket
#5 - 5 Ways to Make Extra Money
#4 - 10 Simple Money Saving Tips for 2008
#3 - Get Set for 2008
#2 - Valuable Lessons to Teach your Children
#1 - Investing on a Low or Single Income

2 comments:

allison t said...

Not for me. I looked into it once but it was just too complicated. And I have a friend who was in one that got very messy. You need to have an exit strategy in place before you start.

Maxabella said...

As per your post, the investment club I was interested folded in the mid-90s, along with my early retirement dreams...

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