Avoiding Mistakes That Could Ruin Your Investment Club
By Anthony Rhodes
Pooling
your resources, meeting together and hopefully making a little money in the
process; these are some of the attractions of having an investment club. There
are investment clubs for friends, co-workers, neighborhoods and others, but despite
their varying differences, they all share a similar and familiar theme:
associating like-minded individuals together for the purpose of growing an
investment portfolio. While having an investment club can prove rewarding in
many different ways, it can also be wrought with many potential dangers. Most groups
rarely, if ever think of the pitfalls when developing their club, and as a
result, may not be able to maximize its full potential, and many, unfortunately
dissolve mere months after their formation.
The
particulars involved in organizing a successful investment club are task-worthy
within themselves, but when you add to that mix the less obvious matters (those
which require nuance and subtlety), becomes even more daunting. So this week,
we’re going to take a look at the ways in which you can make your investment
club stand out from the pack. I’ll also attempt to prevent you from making the
consistently disastrous mistakes that have caused investment clubs aplenty, to close
their doors for good.
Bored Meeting
Let’s
face it, investing can be a bit esoteric, and over time can cause non-professionals
to fall victim to its perceived ennui (especially when the portfolio isn’t
performing very well). This particular strain may not reveal itself early on
within your investment club, and as such, can lie dormant and show little proof
of its existence. It’s only when your members begin showing up less and less
frequently at meetings that you begin to recognize it as a culprit, but
unfortunately, by then, it may be too late. Avoid placing your club in this
predicament by making your meetings more than just a sit-down to discuss
investments, but a social gathering; where you discuss any number of items in
addition to this topic. Perhaps beginning with more lively areas of interest,
such as sports or entertainment, and then ease into your investments once full
participation is at its peak. This approach will allow you to fend off this
potentiality for boredom, and should ensure that interest in your club remains
high.
Learning, Earning, and Avoiding Burning
Just
because someone is willing to join your club and contribute to its portfolio,
doesn’t necessarily mean that he or she understands the investments held within
it. Due to shame or peer pressure, some individuals may dishonestly profess
their knowledge simply to be a member of the pack, and as long as the portfolio
continues to grow, may remain silent on such issues. However, once the
portfolio begins to repetitiously lose value, such a person might seek not only
to abandon the club, but to recoup the monies he or she invested, on the
grounds that they were “in the dark” regarding its holdings. If it’s later
proven that the individual did not, in fact, understand the investments, you
and the remaining members of your club may prove to be liable, and unfortunately,
subject to legal proceedings. This situation can be avoided by simply providing
investment education material to all members during your meetings, regardless
of their means or sophistication. It might also be a pretty good idea to
suggest investment education blogs, or hosting seminars with investment professionals,
in order to ensure credibility. In today’s litigious environment, taking
someone’s word regarding their investment knowledge isn’t enough to safeguard
the well-being of your investment club. But being proactive and preparing for
unlikely but possible eventualities goes a long way towards doing so.
Any
endeavor which provides the potential for gain, inherently involves risk, and that
applies to our social interactions, as well. Our investment clubs are not
merely a mechanism through which we invest, but an organism; complete with
personalities and attitudes, some of which that remain unseen. A successful
club entails not just the ultimate performance of your investments, but that
this truth is understood and managed. And if not, you may shortly come to
realize that you are the proud member…of a club of one.
(Anthony
Rhodes is a Registered Investment Advisor
and owner of wealth management firm The Planning Perspective www.theplanningperspective.com)
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