Investing philanthropically: your club can make money while doing well - if you use your head

Black Enterprise, March, 1998 by Carolyn M. Brown

There's a point that successful investment clubs reach after they've been around long enough. To some it's a moral dilemma, for others a time of financial reckoning: do we look beyond the stock market?

Indeed, a good number of clubs look outside of traditional securities--stocks, bonds and mutual funds--not only to invest gains they've made in the market, but as a means to give back to their communities.

One example is the Washington Women's Investment Club (WWIC), which has divided its investment portfolio--now worth in excess of $150,000--in half between securities (stocks and mutual funds) and cash, including small business capitalization loans. That way, members argue, they're able to give fledgling African American businesses a boost while garnering an average annual return of roughly 21%. (For comparison, the National Association of Investors Corp. recommends that clubs should average a 14.9% annual rate of return.)

The 10-year-old Washington, D.C.-based club follows strict rules to ensure that its ventures outside the market are a success. "We never take our money out of our securities to invest in real estate or outside ventures," says Group President Irene Finch. "We maintain some liquidity at all times and use that money to invest in what we see as opportunities to, maximize our returns."

Altogether, WWIC has invested in 12 different entrepreneurial ventures, including a sports management company, an arts studio and an arts show, which has become an annual event.

"Our mission is to make money and to have fun doing it," explains Finch. Not every marketing proposal and business plan that WWIC comes across is financed. The group has been approached by several dozen people seeking anywhere between $10,000 and $250,000.

"You have to evaluate each project carefully just as you would a stock investment," says Club Secretary Eloise Foster. "Will it allow you to accomplish the club's investment objectives and the kind of return you want to see? We have a rate of return base for every venture we invest in."

Another example is the Los Angeles-based Millionaire Men's Club founded in 1991 by restaurateur Adolf Dulan of Aunt Kizzy's Back Porch. The group of professional black men uses a portion of its $100,000-plus investment portfolio to host several charitable events, including an annual Christmas toy drive and a quarterly soup night held for the homeless and impoverished. Philanthropy is only a portion of the Millionaire Men's Club's activities outside the purview of Wall Street. The group has invested heavily in real estate over the years, by taking run-down properties (single-family dwellings) renovating them and putting them back on the market--generating an average rate of return of 25%, a percentage that more than holds its own against the strong stock market performance of the last few years.

That's not to say investment clubs can waltz into uncharted territory easily. "To branch out like this, you need someone in the group with a legal and/or financial background in this area, cautions the club's president, Dr. Charles Loeb III. "We're lucky enough to have both." Loeb says the group's tight-knit structure has actually been a boon when the dub has looked beyond the stock market and had trouble getting funding from banks and other financial institutions. "Each time we purchased a property, an individual member had to apply using his or her credit rating to get us through the purchasing process," he recalls.

A solid organizational structure helps as well. The seven-member club is set up as a general partnership with each charter member having an equal share. There are also at-large members. "What makes our group work is that we have known each other for over 15 years," adds Dr. Loeb, an obstetrician/gynecologist who's had his own private practice for the past 21 years. "While many of us invested on our own, we decided to come together as a group to invest in these kinds of ventures."

After receiving so many inquiries about the club, WWIC decided to self-publish a book: How To Start An Investment Club. (The 187-page book costs $19.95 plus $4 for shipping and handling. Write: P.O. Box 56373, Washington, DC 20040-6373.)