Investment Clubs Provide Education, Security

Good idea for newcomers to investing

I have often thought that it might be a good idea to get into investing. The thing is, it’s kind of scary. I don’t really know where to start. People are saying that it’s good to buy while stocks are down, but where to begin? I don’t know how to start, and I’d have no idea how to pick the right investments.

Lucky for me, I came across this article by David McPherson, the Founder and Principal of Four Ponds Financial Planning.

Join the club

Just like you can join a book club, or a cooking club, you can join an investment club. Investment clubs are groups of people that contribute money every month to a shared joint portfolio. Investment clubs have been around since the 1940s. They became popular in the 1950s, and now they can be found pretty much anywhere in the United States.

Benefits for beginners

For people who haven’t done any investing before, the other members of the club can be a big help. Everyone can share information and it can help the unfamiliar language be less daunting. It’s kind of like payday loans — you are much better off if you understand what you are getting into.

Jen Sterling, the president of a Virginia-based investment club, said she and fellow members have tackled unfamiliar territory together without feeling intimidated. “We can look at each other and go, ‘What the hell’s a margin?’ or ‘What’s a stock buy?’ or any of these terms that we don’t know — we can ask each other. This is a case where we can all come together comfortably and learn something we were never taught.”

Typically, members contribute a set amount of money each month. Then they make investments based on decisions they reach during monthly meetings. Between meetings, members research investments to prepare for the next meeting.

Help in hard times

McPherson also recommends investment clubs for people whose portfolios have taken a hit during the recession.

The education and support provided by an investment club can help small investors navigate these difficult times and provide a buffer against the urge to panic and sell stocks at low points, he says.

Personal reviews

Marie Gaziano from Massachusetts says her investment club has given her strength and focus. Even though her club has been around for decades, they are still taking new members. Other investment club members have great things to say about their groups.

“It’s a wonderful learning experience,” said Martha Schilling, a Dresher, Pa., financial planner who has been involved in three different investment clubs. “They promote value investing and not trading, getting a solid foundation, researching companies and doing comparisons, monitoring them.”

Something for everyone

While the median income of people in an investment club is generally higher than the average income in the country, McPherson assures readers that these clubs aren’t just for the wealthy. Monthly investments are often less than $100, so people in many different income brackets can join. The key is finding the right club for you.

Where to go now

There are a couple web sites you can visit to find an investment club. The Securities and Exchange Commission has information on investment clubs on its site, www.sec.gov. You can also visit betterinvesting.org. Or check out the Motley Fool web site.