Well, you've heard about their popularity in Barron's, The Wall Street Journal, the National Post, or The Globe and Mail and are interested, but you need further convincing. Below, we present four of the better reasons why one should consider joining an Investment Club.
It is often said that two heads are better than one. In this case, with 8 - 15 heads, well you get the idea. Essentially, in a club you now have a little more "gray matter" available to sift through the vast array of financial information out there, and hopefully make some sense of it. We suggest you initially elect each member to become an "expert" in one small area of investing in which he or she can then share his/her knowledge amongst the members or vice versa. This is an excellent and efficient way for the entire group to learn and pass on their knowledge to each other.
In the US, over 37,000 Investment Clubs are currently registered with the National Association of Investors Corporation (NAIC), an organization which, among other things, helps small investors create and open Investment Clubs. According to the NAIC, the majority of these clubs consistently outperform the Standard & Poor's 500 (a broadly based US equity index). Whether this is due to the power of shared research and resources or some other combination of factors, it is unclear. However, it appears one thing is clear: participation in a well-run Investment Club has the potential to produce above average levels of return for your portfolio.
In regards to brokerage fees or commissions, because a club is making singular purchases for a group, you still pay the single commission. Thus, the club's singular transaction fee is effectively spread out across its entire membership, significantly reducing the cost per person. Again, we refer back to the power of shared resources and research; all books, publications, quotation services, or other investment tools or advice can be shared and thus, only have to be paid for once. Investment Clubs also tend to take advantage of Dividend Re-investment Plans (DRIPS) and other low-cost share purchase plans more often than individual investors.
The truth is, Investment Clubs give you a great excuse to get out of the house (unless all meetings are at yours), see some people you may not see everyday, who usually share a common interest (money), and chat. Somewhat of a camaraderie tends to form between Investment Club or "Investment Team" members. In fact, some have even been known to pit their club's returns against others in legendary battles for Investment Club Supremacy.