CREATING YOUR FIRST INVESTMENT CLUB

08/22/05

by Jim Slobodzian

An investment club is a group of people who meet at least once a month to increase their investment knowledge. They agree to contribute a predetermined amount of money which they then pool together to invest, typically, in the stock market.

Depending on the extent of the trading knowledge of the members, monthly
contributions can be modest, ranging between $20 and $50. Mostly, clubs of this nature are to give each member an affordable way to learn how to purchase stocks. Once you've gained enough confidence, knowledge and experience - you would normally expand outside the club and create your own personal portfolio of stocks.

Before I share with you about how to create your first investment club. Let me explain what your normal investment club is like. Normally, an investment club is made up of - between 10 to 20 members. Each member is required to bring some knowledge or research to the table about potential stocks. The meetings are to discuss the stocks as a group and then to decide on which stocks should be invested in by the group as a whole.

One of the most important items on the agenda to agree on before looking at
any particular stock is to agree on the philosphy of the clubs trading goals. It's best to agree on this early into the group to avoid arguements later on. For example, someone in their twenties might prefer to invest in riskier stocks while someone in their retirement years would prefer to invest in stable and slow growth stocks for safety purposes.

It's normally best to choose your members carefully first by similar goals. According to the National Association of Investors Corporation, there are over 50,000 investment clubs in operation in the United States. These clubs are made up of many different groups of people with many different investment strategies. You have clubs made up of all women in their retirement years, you
have church groups that have formed investment clubs, you have all black
businessmen investment clubs that focus on investing to give back to their
communities.

I'm going to share with you how easy it is to create your own investment club
by sharing with you a little information about the one I'm forming at this very minute. As you know, I published the eBook "An Entrepreneur's Approach to Buying & Selling on Wall Street". When I began sharing some of the information and stock picking strategies found in that book with some of my friends from church. They were very interested in learning more about
how I was able to choose stocks that produced such remarkable gains.

So, I agreed to create an investment club where I would actually teach
them first hand as a group how this system works. We met at my house
one night to discuss just what would be involved and to iron out just a few
minor details before we could even begin. First, we as a group decided to
keep our club rather small. At least 4 of the 7 were already investors - at
least they already had their own personal brokerage accounts.

Once, we agreed on the number of members, I made the suggestion that
since we were focusing on the strategies of my eBook that we make it
part of the bylaws that we use only those strategies and no others to avoid
any arguements later on. I also impressed upon the idea that we treat this investment club a little different than most other clubs. I wanted to prove
the awesome power of these strategies, so I suggested that we only make a one time investment rather than making regular monthly contributions.

We would allow a simple math equation to determine just how much we
would invest up front. We chose Charles Schwab as our broker and because
they have a minimum amount of $5,000 to open an account, we agreed that
we would all invest a one-time $715.00 per member upon our second meeting.

Next, we chose a name for our investment club. So of course the very
first official investment club based soley on the strategies of this eBook
was born - "Chosen Few Investment Club", an appropriate name for our
group. The only other item we needed was to apply for the clubs own
Federal Tax ID number or EIN# from the IRS. Once I received the number
in the mail, the only thing left was to choose officers of the club and open
the account under the "Investment Club Account Agreement" with Charles
Schwab & Company.

Our investment club is registered with the IRS as a general partnership and
each member will be required to be responsible for his portion of any capital gains tax at the end of the year, as the club will file one form stating how the capital gains are distributed. Each member will receive a form called a K1, very similar to a 1099. Each member will file the information from that K1 with their personal 1040 tax return.

So, as you can see - actually forming your own investment club is rather simple once you layout everything you must do and agree upon early into the venture.

7 Easy to Follow Steps To Creating Your Own Club


1. Choose your members carefully
2. Agree on the size of the club
3. Establish bylaws for the club
4. Choose a name for the club
5. Apply for your clubs Federal Tax ID number
6. Open your clubs brokerage account
7. Treat the club as a serious partnership, keep records, meet regularly
and enjoy the experience of learning to invest as a group.


Because this is our first official investment club based on the strategies of the eBook. I'll keep you all informed in upcoming issues as to our overall gains and networth. In fact, I'll more than likely add a section to this newsletter appropriately named for the updated status of the club.

About the Author

Thomas A. Hilton, Jr., is an individual investor who loves teaching others how to make over 100% returns in the stock market using entrepreneurial investor techniques. http://www.entrepreneurial-investor.com Visit today and sign up for his ezine "Short Term Profit News".