They are cheap. They are fun. They might make you a fortune. And they give you an excuse to get down to the pub. They are investment clubs, one of the fastest growing leisure pastimes in Britain.
By making stock market speculation a social activity, these clubs are attracting thousands of new investors to try their luck with shares. They allow savers to pool the risks and rewards of investment.
There are around 9,000 clubs operating in the UK. ProShare, which provides advice and support for clubs, reckons there are around 300 new investment clubs being formed each month. They already control investments worth a staggering £149m.
Club members meet regularly, usually once a month, in pubs, social clubs, at workplaces or in each others’ homes. They share investment ideas and tips and then jointly agree which share or shares to buy and which to sell. Each member makes a monthly cash contribution, typically £25 to £50. This gives the club its capital to trade shares.
Few clubs are formed by financial wizards. Research shows around 30% of members work in education, medicine and the public sectors, with another 24% from manufacturing. Only 12% claim a background in financial services.
Jeremy King, head of personal investment at ProShare says: ‘The investment club movement seems to be a potent driver for wider share ownership. A full 61% of club members had never actually traded shares before joining a club.
‘Club objectives should be to have fun, learn more about the stock market and to make money – strictly in that order.’
But many investment clubs are finding stock market success. The average club surveyed by ProShare has seen the value of its portfolio rise by 20% over the past year. Women-only clubs do better, with an average rise of 30%.
Club members are encouraged to bring their own opinions and experience to the table. Typically, each member will be allocated a sector to examine, reporting back to the rest of the club at their next meeting.
Clubs need a minimum of three members and can have a maximum of 20 to comply with Revenue rules. ProShare recommends five members as a good starting number, with further members joining at a later stage. Clubs have their own bank account and share trading account with a stock broker.
Members decide how much to pay each month. The only set rule is not to invest money that you cannot afford to lose. Some clubs start by taking a lump sum from each member to get them off to a flying start. The alternative is to run dummy investments for a few months until the monthly contributions have built-up enough to make the first investment.
While clubs can make investing more fun, they cannot lift share dealings out of the clutches of the taxman. Members are taxed individually, paying income tax on their share of dividends and potentially capital gains tax on any profits. The Revenue operates two schemes for clubs to simplify the tax paperwork.
Stockbrokers are increasingly tailoring services to appeal to investment clubs. Net-only stockbroker iDealing.com in October launched a scheme for clubs with a flat rate #10 a time fee for buying or selling shares, plus a #20 a year management fee. Charles Schwab, Natwest and Barclays stockbrokers all cater for clubs.
Some financial information groups are also targeting clubs. In October Equity Investigator opened for business aimed at providing independent analysis and information on company shares to investment clubs. It will focus on technology shares, popular with many clubs, charging #40 for an initial three months service. If clubs feel the information is useful, they can sign up for a full year at £200 a go.
Meanwhile, financial data group hemscott.net has teamed up with ProShare to create an internet service for clubs. This lets a club set up its own home page on the internet to which all members have access. Data feeds from hemscott mean that the prices of shares in a club’s portfolio are constantly updated, allowing club members to see how they are doing on a day-by-day basis,
Investment clubs are also helping to turn middle class Britain into a nation of eager investors.
Two thirds of club members say are they are now far more confident about buying shares and one-in-five has started their own portfolio since becoming a club member.
HOW TO GET STARTED
Picking a winning name is frequently the hardest part of getting a club off the ground. It can cause debates far more heated than deciding what to invest in first.
Clubs are usually formed by a small group, adding other members later until they reach the 20 person limit.
Pro-Share sells an investment club manual for #29.50. This guides would-be founders step-by-step through getting a club up and running.
Essential first steps include:
– Appointing a treasurer and secretary
– Deciding on rules and a club constitution. Standardised versions are available – Picking a club name
– Opening bank and stock broking accounts
– Setting a monthly subscription level
– Deciding time and venue for monthly meetings
– Deciding an investment policy eg. cautious, blue-chip, high technology
It may be three or four months before the club is poised to buy its first share or shares. ?:
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