Investment Clubs Help Members Learn About Alternative Investments

Finding the right alternative investments can be intimidating even for experienced investors. Some people have turned to investment clubs to help them sort through the options and select …

Finding the right alternative investments can be intimidating even for experienced investors. Some people have turned to investment clubs to help them sort through the options and select the right investments to diversify their portfolios.

Investment clubs come in many shapes and sizes, but the ones this article addresses are generally small groups of individuals who get together – sometimes online, or “virtually” – to study investments. Some clubs pool money by requiring a set amount to be invested per member periodically, while others are self-directed groups whose members invest through their own accounts rather than pooling their funds. According to the non-profit BetterInvesting, (formerly the National Association of Investors Corporation, at www.betterinvesting.org), at least 71,000 individuals belong to investment clubs, including 8,600 groups associated with the national organization and/or one of its regional or local affiliates.

Each club has its own rules, generally through a set of by-laws, charter or partnership agreement. For example, some groups invest only in equities, while others have more flexible investment policies. Some require minimum periodic investments while others have a set investment amount each month or quarter. Some clubs have requirements that no member can own more than a set percentage of the club’s investments. Another rule, for some clubs, is that each member’s investments through the group can constitute at most a certain percentage of his/her total portfolio.

In looking for a club, or other individuals to form one with, it’s particularly important to inquire about the other members’ expectations. Adrienne Graham, president of the GOAL Investment Club and CEO of Hues Consulting in Alpharetta, Ga., is on her second club. The first one disbanded, she said, because while Graham and another member, Rhonda Davis, “were on the same wave length as far as investing is concerned, the others were not on the same page – they were not willing to do the work necessary to learn about the investments.”

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Graham and Davis went on to form GOAL (Growing Our Assets Large, LLC), buying a few stocks and learning how to evaluate possible investments. They own interests in real estate investment trusts (REITs) and hope to purchase real estate when the time is right. They have taken in two new members and plan to open membership up twice a year, growing slowly and helping the new members understand the educational process. This year, Graham said, the group plans to focus on taking on more risk and diversifying their portfolio. “We feel like we are comfortable with stocks, and now we want to become comfortable investing in other businesses, commodities and other investments that will help us grow our wealth,” she said.

For Aaron Pearson, senior vice president of PR firm Weber Shandwick, membership in Harvest Investment Group in the Twin Cities has provided not only a pooled investment opportunity with a group of friends who share the risk, but also an educational experience that helps members “be smarter with the bigger dollars we end up investing outside of the investment club.” Although Harvest’s limited partnership agreement permits the club to invest only in equities, the group has sought out alternative assets that fall within that definition. For example, they hold preferred shares that pay a relatively predictable return and behave more like a debt instrument that would not fit their definition. When they were looking to buy into an emerging market, they settled on an exchange-traded fund that holds shares in companies trading on the Malaysia stock exchange.

In both Harvest and GOAL, as with many investment clubs, the members are not financial professionals, but they are committed to educating themselves and learning about potential investment opportunities. That’s also true of the Financial Challenged Investment Club (FCIC), a group of 10 members – mostly women business owners in the Boston area – who have been investing together for about 12 years. Although FCIC has discussed alternative investments, the group has decided so far not to purchase any. They are interested in “green investing,” which they consider “the riskier side of life,” according to member Elizabeth Brown, president of Softeach Inc. in Newton, Mass. Brown noted that green stocks are very volatile right now, but the group plans to invest a little at a time to mitigate the risk. They limit their green investments to at most 15 percent or 20 percent of their portfolio and pick some big companies (including General Electric, which manufactures wind turbines) as well as small ones (such as Massachusetts-based Evergreen Solar).

Getting Involved

Investors who are interested in joining a club shouldn’t have too much trouble finding one. Some clubs are sponsored by local community organizations, such as the YWCA, so check in your own area first. Two online communities – Motley Fool’s Folly in 50 States and bivio.com’s Club Cafe – frequently have messages from clubs looking for new members. In addition, BetterInvesting’s chapters throughout the United States include a number of Model Investment Clubs whose meetings invite nonmembers to attend. Some of the chapters also provide listings of clubs that invite visitors and/or have openings for new members.

If you can’t find a club that suits your needs, you might consider starting one. BetterInvesting’s Web site is full of helpful information to help you get established.

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