Investing can be mysterious and frightening for most people. Investment clubs Are about Education . They Are for people who want to learn. As Investment club Partners gather to learn how to invest successfully for a lifetime, the obstacles of confusion and fear Are removed. In other words, the goal of an Investment club is to educate the investor.

Do you have what it takes to be in a club? Do you have a clear purpose for wanting to start or join an Investment club? Do you love to Read? Do you enjoy playing with numbers? Or, Are you afraid of them? Do you have a few hours each month to devote to reading and/or Stock study? Do you have a computer? How about Internet Access ?

Attributes of Successful Clubs
• The Partners enjoy each other\'s Company and enjoy communicating between meetings.
• They agree on the same Investment philosophy.
• The club has a Long-term buy-and-hold, growth-oriented strategy.
• All members attend and participate at every meeting.
• Stocks Are never purchased without a complete study.
• All members have Access to computers and/or Online Resources .
• The club uses Unit -based accounting.



Types of Investing Styles

There Are Investors and traders. Traders Are in this for the short term and quick profits. Investors use their portfolios to build their retirement Funds , and Are therefore, in this for the Long term. But within this investor Group , there Are 3 types:

Momentum Investor: The investor uses Technical analysis to gauge Price movements. Buy and sell decisions Are based on investor sentiment--something very difficult to quantify.

Growth Investor: Fundamental analysis is used to determine whether a Company is a worthy Investment , such as growing Sales and earnings, solid profit margins, and future Business prospects.

Value Investor: This investor also uses fundamental analysis, but concentrates on different numbers. Value seekers Are mainly looking for Companies that have very Low valuations or that have stumbled. Very cheap stocks Are sought with signs that they may be coming back.

The most successful clubs prefer to use fundamental analysis to find very good-quality Companies , that have growing Sales and profits, and that have a future so Bright that they can buy them today and not sell them for a number of years. Then they hold on through thick and thin -- as Long as the fundamentals remain strong. This is called a buy-and-hold, growth strategy.

Some Questions As You Choose Members

Will they be reliable? Will they show up and pay their dues on time? Are they team players? Are they willing to commit for the Long term? Do you know if there\'s room in their schedules to devote to the club? Do they travel for work, or will the commute to the meetings be a problem for them? Would you Trust them with your money and your future? Would you want to go into Business with them?

The Darker Side of Investment Clubs

It\'s rare that an Investment club is a bad experience. Most of them Are fun and friendly places to learn. However, here Are a few things that can cause the demise of an Investment club--and they All center around the members. Members Who:

• fail to pull their own weight (and a club that allows them to stay.)
• only have a mild interest and therefore do not participate regularly.
• fail to show up, or pay on time.
• fail to choose an investing strategy and stick with it.
• will allow a Stock to be purchased without sufficient Research .
• fail to respect that the club is a Business .
• fail to seek means to keep it interesting and focused on solid Investment Education .
• will allow somebody else to do All the work.
• fail to expect flawless record-keeping.

Getting Legal - Types of Business Entities

Corporations Are taxable entities with a lot of paperwork that require costly accounting practices. This form of Business structure is rarely chosen by Investment clubs.

General Partnerships allow the taxes to pass through to partner personal tax returns, and therefore, have minimal costs, minimal paperwork, and Are preferred by most clubs. General Partnerships Are the least costly Business structure and the most commonly used approach for BetterInvesting clubs. Limited Liability Partnerships generally cost more and this varies by State of registration. There Are other differences, of course, but the Price is usually the determining factor for most New clubs.

Limited Liability Corporations Are fairly New . Some think that they provide slightly more liability protection to the individual members. But, they also can be quite costly and require more paperwork.

Registration Requirements

Registration requirements vary from State to State and for that matter, county to county. BetterInvesting encourages All clubs during formation to determine their registration requirements with Local authorities.

Your best bet will be to contact your Office of the Secretary of State . You can find it at: http://www.nass.org/sos/sosflags.html.

Federal Tax ID Number: This number will be required for your partnership tax returns, and also by the Bank and brokerage firm in order to open an account. First , you need an I.R.S. Form SS-4. You can get a copy at any library. Most have an I.R.S. Forms book. You can also contact the I.R.S. at 816/926-5999. Or, you can copy the form from the IRS Web site. After you have filled Out the form, you can either mail it to the address on the form (4-5 weeks), or you can call the Tele-Tin number at 816/926-5999 to immediately receive the number. The latter option is best since you will need the number for the Bank .

State Income Taxes

Most states will require that the Investment club file a State tax return for your partnership. This is a short, less-complicated form, to which you must attach copies of your Federal filings. Just as with the Federal return, All State taxes flow through to your personal income tax returns.

Contact your State \'s Department of Revenue for more specific Information .

You will also need the SIC number (Standard Industrial Code for Investment clubs). It\'s 6700.

Bank or Brokerage?

In the beginning, it always seems easier to open a Local checking account. However, the Online brokerage firms now offer check-writing privileges. You should decide what\'s best for the club.

For a Local Bank , you will need to stop in and pick up a Business application, several signature cards, and any other Forms they require. After these Forms Are completed, the Bank will also want a copy of the signed partnership agreement, certified Assumed Name Certificate, and a copy of your completed SS-4 Tax ID form.

You can open the account with the checks from your First official meeting.

Research brokerage firms on the Internet to determine which one is best for you. Start at Gomez Advisers. Gomez.com scores Online Brokers on several criteria.

Club Launch Check List

NOTE: Everything you Read will tell you to start with 10 to 20 prospective members. My personal experience showed me that organizing a New club was much easier with 2 to 4. When people Are New to investing, making the initial decisions can be like the blind leading the blind! It\'s just easier when you have a small Group to review and discuss the options. The more opinions you have in the beginning, the more difficult it becomes to get a consensus. I recommend that you start with a very small number. Officially start the club. Then, afterwards, start Holding informational meetings to entice New members.

1. Find a friend or two to start club.

2. Develop an understanding about Investment clubs by reading the following Books and perusing the websites listed at the end (Best One-Stop-Shops...). After everyone has Read them, schedule your First organizer\'s meeting. The Beardstown Ladies, Common-Sense Investment Guide (their First book); Investment Clubs by Kathryn Shaw; Introduction to Successful Investing by Angele McQuade (official BetterInvesting manual).

3. First meeting of club organizers should discuss: (1) The material everyone Read, (2) Desire to a start club and, (3)Investing style and/or strategy--this you must agree upon.

4. Delegate the following for next meeting: Gather sample partnership agreements, bylaws, mission statements, legal Forms , banking and Broker Information , and any Information on investing strategies and club accounting Systems . Split up the responsibilities. Each member of the organizing committee should Research their respective Information and be prepared to explain it at the next meeting. Also, everyone should start considering names for the club and start a list of potential members. Schedule the next meeting two weeks away.

5. Second meeting of club organizers -- Write a Mission Statement. Develop and/or modify an existing Partnership Agreement. Develop and/or modify an existing set of operating procedures. Choose and define officer positions. Choose and define membership requirements. Discuss and decide on dues and entrance/exit fees. Discuss and choose preliminary Bank and/or Broker . Discuss and define a preliminary Investment strategy. Discuss and choose a preliminary club accounting System . Adopt a club name. Combine your lists of potential members and determine which individuals best fit your requirements. Write an invitation letter to an informational meeting. Decide on what literature should accompany the invitation letter. Select informational meeting date and mail letter and Information . Take a look at the Stock Education sites and choose a Stock or subject for the First educational segment.

It is NOT going to be possible to complete the above in one meeting, so schedule as many organizational meetings as necessary to fully complete these tasks -- preferably one week apart.

(Note: If you start with a small handful who have been involved with the entire process, you can skip to the First Official Meeting. If you choose to add members before the club is formed, mailing Out the final draft of the Partnership Agreement and Operating Procedures will minimize the number of meetings required to get the club started. Keep receipts of All expenses incurred to start the club, including mailings. These can be reimbursed Out of the initial Funds .)

First Informational Meeting

Prepare a brief introduction. If you mailed Out Information with the invitation letter, the prospective members should already be prepared.

Be clear on the investing style, and poll them to make sure they agree; Review the partnership agreement, bylaws, legal Information , and membership requirements, as well as fees and dues. Answer any questions. Take a vote to see how many Are interested.

If there Are concerns or changes to be made to any aspect of your original plans, the next meeting will be the second informational meeting to finalize the agreements and entry requirements. But if no one objects to the original plans or requirements, the next meeting will be the First Official Meeting.

First Official Meeting

Call to order. Elect officers (Secretary should immediately start taking the minutes.) Vote to adopt the Mission Statement, Partnership Agreement, Operating Procedures, dues and fees. Vote on an investing strategy. (Last chance for anyone to bow Out!) Sign partnership agreement.

Choose and vote on the following:
1. Regular meeting date, time and location.
2. Whether to join NAIC.
3. Which club accounting program.
4. Which Stock study tools.
5. Whether to use a Bank or Broker for Bank account.
6. Which Broker to use for Stock purchases.

Collect initial payments. Sign Bank /broker Forms -signature cards. Discuss and choose committees. Provide Information and homework for First Stock study, or assign reading material such as Books or articles for the First Education program. Delegate responsibilities for next meeting and review everyone\'s assignments. Adjourn.
Between the First and Second Meetings
• Secretary to file club entity with the State ; Once received, Secretary to handle Publishing Information .
• Treasurer to file for Tax ID Numbers (after name is accepted by the State ); Treasurer to open checking/brokerage account(s) with initial dues.
• Vice President/Education Committee to prepare to lead First Education program.
• Treasurer to purchase/set up accounting System .
• Secretary to order other computer programs etc.
Usually, the treasurer keeps the accounting software, and the permanent banking and brokerage records, along with a record of the monthly club valuation and member statements and the annual taxes.
The Secretary is usually responsible for safekeeping the original partnership agreement and signature page, the original State and Federal certificates, Stock certificates if you receive them, a concise record of the minutes of every meeting, along with any correspondence, i.e. resignation letters and letters requesting Information from prospective New members.
Books and Websites
I maintain a list of favorite references and Resources at Crow River Investment Club.
Some favorite BetterInvesting Resources that help Investors to learn a Long-term growth investing strategy include:
• Starting and Running a Profitable Investment Club
• Read any of Peter Lynch\'s Books . They Are simple to follow and very entertaining! My favorites Are \"One Up on Wall Street\" and \"Beating the Street.\" These and other preferred Resources can be found at Favorite Books of BetterInvesting Members.
• About.com - Investment Clubs
• Frequently Asked Questions on Investment Clubs

Pushing Forward - Learning and Earning

Start Simple! When you elect to become a BetterInvesting Club, make it a requirement that All members must purchase a copy of the BetterInvesting official guide, Introduction to Succcessful Investing. It can be found at the Local book stores or ordered Online using the link above. You can begin by going over this book chapter by chapter. This is how many clubs start.

Then, consider obtaining Stock analysis software and learn how to use it. This alone will take up the First year\'s Education program.

By the time you Are ready to move on, you will already have found interesting workshops and articles, either Online or in Books , that make excellent educational material. I provided an overview of suggestions and emphasized the need for an educational curriculum for BetterInvesting with Establish a Long-Term Education Strategy. Also consider rotating the Education program on a monthly basis so everyone gets a chance to participate.

\"The best way to learn it is to teach it!\"

Where Can You Find Some Help?

BetterInvesting has a network of Local volunteers that Are eager to help you. You can look up contact Information at: BetterInvesting Regional Chapters.

You may contact NAIC at service@better-investing.org.

Dig in. Start a club. You\'ll be glad you did and I\'m happy to help.

Lynn Ostrem has been a member since 1995 and is currently the vice president and Education chair for the Crow River Investment Club in Minneapolis, Minnesota. She has started three clubs and served in All partnership roles for her clubs since 1994. She can be contacted at garbagecop@earthlink.net.