What are investment clubs and how can you join one?

1. Who should start or be part of an investment club?

Investment clubs are great for those people who want to purchase bigger assets, using a combined balanced sheet, or purchase assets that they can’t afford to buy alone, such as property for example.

2. How can someone start an investment club? And what would they need to start one, and how many people should be in one?

It’s as simple as rallying people you trust and that you have a common understanding with.

With that said, sometimes it also works to have people with different personalities as part of one investment club e.g. someone who’s risk averse and someone who has an “all or nothing” approach, as it gives the group perspective on the various outcomes and scenarios that they may face when investing.

However, the key is to partner with people with shared goals and objectives – regardless of size.

4. What are the pros and cons of joining an investment club, rather than starting your own personal investment portfolio?

As with any investment strategy, there are pros and cons involved in joining an investment club. The great thing about investment clubs is that, by pooling together your resources, you are able to invest in larger assets that can result in higher returns in the long term. In addition to this, what makes investment clubs more unique is that you are able to make more informed decisions about investments, given the varied opinions that come with investing with a dynamic group of people. Investment clubs also give one a sense of assurance and guidance, given that the group shares ideas on what works and what doesn’t before making a particular investment.

While this is also considered a pro, the downside to investment clubs is that you can lose out on opportunities, given that you need to make investment by committee – which could delay the decision making process. Another disadvantage of investment clubs is that if the group makes a bad long-term investment you don’t have the flexibility to be able to access cash in the event of liquidity. This is why I often encourage consumers to look at investment clubs as only a fraction of their investment portfolio – this certainly shouldn’t be your only avenue for investment.

5. Are investment clubs popular in South Africa?

Yes they are, which is a great thing is. Take a look at Stokvels – a simple yet effective savings and investment tool that is currently estimated to be worth R49 billion. This shows how investment clubs enable consumers to be able to create an alternative income stream for themselves.

I do feel however, that there is still an opportunity for younger people to get involved in investment clubs, as these are a fantastic way for them to get thinking about investments, and share ideas with like-minded people – ideas which they can apply to their individual portfolios.

This article was written by wealthport