How to launch an investment club: you've always wanted to do it. Our special workshop series will show you how

Black Enterprise, Oct, 1996 by Carolyn M. Brown

Three years ago Vergie Pope and Shirley Vauls of Columbia, Maryland, called on fellow church members to form the Nia Investment Club. The 11 women had worked well together over the years so they decided to see if they were compatible investors.

"All of us had a dream of learning more about how to invest," says the club's president Francetta White. "Even though I had been investing in mutual funds and individual stocks since the '60s, I was not as knowledgeable about the market as I would have liked."

Emphasizing the educational aspect of the club, the women agreed to let their daughters join. At the time, White's 16-year-old daughter, Melanie, was the youngest. Today NIA is made up of 14 women, ranging in age from 20 to 60. As of this May, the value of Nia's portfolio was $25,000, with an average return of 21%.

Learning to use money wisely is a common thread connecting Nia and other investment clubs throughout the country. These clubs offer a low-risk, low-cost way for novices to profit from stocks, bonds, mutual funds and other investments. Above all, a club can diversify its portfolio better than individuals investing on their own. These factors make investment clubs a particularly attractive option for African Americans eager to become more active investors.

"In forming an investment club, you're joining thousands of other men and women who are following the profitable path of learning how to invest in common stocks by doing," says Thomas E. O'Hara, chairman of the National Association of Investors Corporations, a 46year-old trade group based in Madison Heights, Michigan. "You share with them the opportunity to enhance your knowledge of investing and accumulate a significant amount of capital over time."

Make no mistake about it, investment clubs are not get rich-quick schemes or fatal pyramid scams. These are highly structured groups with well-defined long-term goals. Some clubs have been together for more than 20 or 30 years. Today there are more than 24,000 such clubs in the U.S. with about 500,000 members; combined assets now reach $60 billion.

As with any group activity, there are some disadvantages to investment dull. For one, there will always be disagreements. Sometimes it's difficult for two people to think alike, let alone 10. Second, there's bound to be someone who believes they're getting shortchanged or is convinced that others are not carrying their fair share. Also, not every member who starts out with a club stays with it. That said, if you're ready to start a profitable investment club, read on.

Phase One: Members Only

The first step to forming an investment club is to recruit members. Clubs are organized around already established social gatherings. Thus, relatives, friends, co-workers, fret brothers, sorority sisters and church members are all valid candidates for a club. Make phone calls or send out invitations inviting potential members to the first meeting. Ideally, you don't want more than 25 or less than 10 folks. Too few people may prevent you from raising adequate investment capital, and too many may make it harder to run meetings. Also, most clubs rotate meetings in members' homes.

At the first meeting, explain to the group the purpose for forming the club, what it takes to get started and how long before it becomes operational. Clarify your investment objectives and practices: Are the members of the club risk-takers? Are they looking to save for retirement? The idea is to seek out like-minded people. The occupations and interests of each member can vary but the investment philosophy should be the same.

During the first meeting, you should also discuss monthly dues or deposits. How much can people afford? Some clubs ask for an initial ante of $100 per member, then set monthly deposits of anywhere from $20 to $50. The national average is $44. Whatever the amount, members must understand that they are expected to contribute each and every month regardless of market conditions.

Try to weed out slackers. Everyone is expected to play an active role, including conducting research and handling administrative duties. Make sure that members enjoy each other's company.

The first couple of meetings should be spent learning about each other and the stock market. You can refer to such materials as Better Investing, published by the National Association of Investor Corporations (810-583-NAIC), as well as Investor's Business Daily (800-3069744) and Barron's (800-2774136).

Take a vote to determine who's in the club. Thank those who are not for coming. You now have the members for your investment club and you're ready to move on to phase two. Next month, sE will cover how to set up and create operating procedures.

--Carolyn M. Brown

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