Financial Information: Tips On Investment Clubs

Advice on investing groups and the benefits of being involved. How to learn about making investments through such an association.

Tell me, I'll forget.

Show me, I may remember.

Involve me, I'll understand.

This old proverb fits many circumstances but seems especially apt when applied to making investments. As the result of a lack of involvement, many people also lack understanding of investments. Here's how an investment club can help.

Through investment clubs, people learn about the market. They read the stock pages in the newspaper and add financial terminology, such as "asset allocation" and "dividend reinvestment," to their vocabularies. They learn how to research potential investment prospects by studying the management, products and policies of different companies. Most importantly, they apply what they learn by making investments. It helps destroy the mystique the market holds without risking a lot of money.

Typically, a club has 12 to 18 members, but some may have as many as 30. Monthly attendance is not mandatory at many clubs as long as there is a core group committed to making investment decisions for the entire club. Mandatory monthly dues depend on the club's goals""they may range from $25 to $100, or more. Goals clubs set for themselves might include making enough from investments to pay for retirement or a child's education.

Usually investment club dues are pooled as capital to buy stocks. And clubs may set the standards about the investments they make. For instance, a club may look at whether the companies they're considering have gender-balanced management, fair wage and employment practices, or are environmentally conscientious. In some cases, clubs use a portion of their dues to buy members software to select and track their investments or to pay for classes that will help them make better investing decisions.

Most investment clubs are affiliated with the National Association of Investors Corporation (NAIC), an education firm organized in 1951. At first, investment clubs were men's organizations, but today women account for 67 percent of NAIC's membership, nationwide.

The NAIC says the central purpose of an investment club is to teach people how to make their own investment decisions. Some brokers see potential problems in this. They worry investment club members may become too narrowly focused on investment and won't look enough at total planning. There is also concern that investment clubs may inadvertently create a bias in members against professionals who may help them plan for a more secure financial future.

While most members won't gain financial security from investment clubs, they do make money. According to the NAIC, the average member's annual return on investments is 13 percent.

Investment clubs typically make long-term investments and encourage their members to stay for the long haul. Rather than trying to time the market, moving from stock to stock, they adhere to investing new money on a regular basis and looking for companies with the potential for steady growth to invest in.

Despite the length of time members stay involved, they share in a common transformation. They become investment advocates and have an increased confidence in their own financial decision- making abilities. Many NAIC club members invest individually, as well. The NAIC reports that, as of July 2000, new money being invested each month by NAIC member clubs, nationwide, was $16.2 million; the amount being invested monthly by individuals from those clubs is $27 million.

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