Investment clubs: what are they and how do they work?

Investing doesn’t have to be a solo pursuit. You can share the experience, the knowledge and the risk by joining an investment club.

You could join an existing collective or even start one yourself with friends or family.

What is an investment club?

An investment club is any group of individuals who meet and collaborate with the aim of researching and choosing investments, and pooling their resources to invest.

The club meets periodically to make investment decisions as a group through a voting process.

Meeting and sharing experience in this way can be a great way to learn about the markets and investing.

The club can be made up of friends, colleagues or members of your family, and could be a mix of seasoned experts and beginners. 

How do you get started?

There are essentially two ways to join an investment club. Either join an existing one or start one yourself.

At a glance, it looks as though joining an established club is the easier option, but there are downsides.

By definition, investment clubs are quite exclusive, so they don’t advertise their presence or actively recruit members from outside.

Privacy laws can make it quite hard to locate established clubs. Often, people are invited by friends or colleagues — they are not completely unknown to the existing club members.

Also, there is usually a ‘buy-in’ to be paid, based on the size of the existing club’s portfolio, plus a monthly subscription of about £20 – £50 but sometimes a lot more. 

Buying your way into an existing club also means that you might be joining an outfit that doesn’t really fit your individual needs – in terms of investment strategy, risk profile and level of subscription. 

So, it might suit you better to start a club of your own. Starting from scratch will allow you to recruit members who you trust and who share your values and ideas.

In this way you can fine-tune an investment strategy together from day one. You can meet informally at first and shape your club as you want it.  

When starting out, you need to pick your broker very carefully.

An organisation such as the Share Centre has over 20 years’ successful experience trading in the global financial markets and understands how investment clubs like to work.

You’ll be looking to establish a diverse mix of holdings in equities, funds, investment trusts, corporate bonds, gilts and more complex investments.

As ever with investing, you need to understand what you’re getting into — individually and collectively.

All investments rise and fall, and previous performance is no guarantee of future success. 

What about ground rules?

You really need to establish probity and transparency from day one.

This is a community, and things will quickly get complicated if you don’t have a common understanding of the dos and don’ts.

Formalities to sort out include creating your own constitution, selecting a bank and appointing officers for specific responsibilities.  

You also need to hold an inaugural meeting — a serious, focused occasion where you can establish the club’s goals, name, legal structure, subscription and joining fees. At this point you need to draft your club’s constitution and rules. 

What about your club’s tax position?

When you set up an investment club you will need to notify HM Revenue & Customs (HMRC).

They will then issue you with all the appropriate paperwork, together with a unique reference number. 

Each year the club secretary or treasurer has a series of duties connected to tax, profit and loss.

These include: 

• Dividing income, gains and losses between members according to club rules
• Providing a written statement for each club member at the end of each tax year — you can use HMRC’s investment club certificate 
• Keeping records of member income and gains 

• Arranging to buy shares from anyone leaving the club 

You are still responsible for your individual tax affairs in relation to the investment club.

Just make sure that you include the information from your written statement given to you by the club secretary or treasurer on your annual tax return. 

Start with a sound constitution… 

Joining or starting an investment club can be very rewarding.

You can gain a great deal of knowledge and experience of the markets and the art of investing, while sharing both the risks and burdens of running a portfolio.

Just make sure that the structure and organisation of your club is sound and completely understood by all members from the very start — especially the exact makeup of your constitution and its rules.

It would be a very good idea to consult a financial adviser with knowledge of investment clubs before taking the plunge — you can’t know too much.