Investment Clubs: A Guide To Using The Stock Market To Make Friends

You can learn a lot from an investment club, all the members will be able to reap the benfits of communal research will meeting new friends.

Like most people you may be looking to make an extra buck on the side. One of the ways people supplement their income is through the stock market. Although playing the stock market carries a risk it can produce lucrative results. If you are tempted by the thought of making money without having the commute but are too nervous to embark on the journey alone you may want to consider joining an investment club. Over a half-million Americans are involved in clubs and do some portion of their trading jointly.

What exactly is an investment club? An investment club is union of investors sharing information for the goal of choosing wining stocks, bonds, funds, or commodities. The average investment club is roughly ten members. Generally a club will meet monthly or bi-monthly for several hours. Each member is expected to come to the meeting with information garnished from research done on his or her own. Trading decisions are generally made in a majority rules fashion, although there is variance depending on the rules of the particular club. Once a decision is made members must stick with the plan; a member cannot pick and choose which investments he or she want to partake it since the investments are held in the name of the partnership and not the individual. The all-or-nothing attitude is an element you must buy into if you are considering joining a club.

Finding a club is a possibility, but you may also form a club yourself. Friends, co-workers, and family members are all good sources of potential club members. Currently there are over one hundred thousand investment clubs in existence and there is plenty of room for more. Most of these clubs are affiliated with the National Association of Investors Corporation (NAIC) and most invest only in stocks. Limited amount of clubs explore mutual funs, bonds, and commodities, however. On average a club will invest somewhere around one thousand dollars a month.

How does the investing occur? After a decision is made one club member is given charge of making the trade. At anytime members can take partial or full withdrawals from a club whenever their desire. The amount of money they receive is based on the value of the shares they own. When it comes to taking account of the gains and losses the club files a tax return. It does not, however, pay taxes. Each member is responsible for filling out IRS Schedule K-1 (Form 1065) papers for his or her own tax purposes.

What makes a successful club? There is no easy answer to this question, although reinvesting and diversification have proven to be important. Reinvesting dividends and gains for compound growth produces, in general, positive results. Diversification of stocks produces positive results and minimizes risk. Diversity among club members is a plus as well. The more spread out the club is in terms of professional backgrounds and personal history, the deeper and wider the club's base of knowledge is.

By joining a club you will gain confidence, not to mention experience. In addition to potential financial benefits you will make new friends who share common interests. If you are looking for a safer and more social way of entering the stock market the investment club may just be the way to go.

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