If you are interested in buying shares in individual companies, but don’t want to do it on your own, you could team up with friends or work colleagues and start an investment club. What’s involved?
Starting your own investment club
To get started, you just need a group of friends or colleagues who are happy to meet regularly (normally once a month) and invest in shares. There are specific rules and regulations for investment clubs which you can find at the Proshare Investment Clubs (where you have to register your club). I’m using information I’ve been given by talking to members of an all-female investment club called FYG Leaf.
1. Set your monthly investment at an affordable level for everyone. The FYG Leaf investment club chose a £100 start up contribution and £25 a month because it was an amount they wouldn’t feel too worried about losing.
SAVVY TIP: Get everyone to pay by standing order to avoid awkward discussions about who’s paid and who hasn’t.
2. Choose a bank and stockbroker whose services you like. You’ll have to set up a bank account for the club and use a stockbroker to buy and sell the shares on your behalf.
SAVVY TIP: Online stockbrokers normally offer the cheapest service, but not all deal with investment clubs. Proshare Investment Clubs has a list of stockbrokers that do.
3. Give everyone in the group a job. This will mean that you don’t end up with one or two group members who don’t have much input.
SAVVY TIP: All the investment decisions should be taken as a group, but it may be easier if two or three members are responsible for the initial research into which shares to buy (make sure everyone gets a crack at this).
4. Work out how you will limit your losses. Do you want to put a plan in place? If so, do this early on (i.e. before you need it).
SAVVY TIP: If you’re investing on your own behalf, you can set up what’s called a ‘stop loss’ to sell automatically once shares lose a certain percentage of their value. The FYG Leaf investment club doesn’t do this but talks about whether to sell shares that have lost more than 20% of their value since they last met.
5. Work out how much you’ll invest each time. Decide if you’ll set strict limits on how much you’ll put in a particular company and whether you’d rather wait until you have over £1,000 or will invest a few hundred pounds.
SAVVY TIP: The FYG Leaf investment club buy shares once they have £1,000 to spend. They’ve found that it’s better to trade less frequently with a larger amount of money than to pay several lots of share dealing costs and stamp duty.
Working out what you want
It’s unlikely that you’re all going to have the same ideas about what you invest in – and it would be pretty dull if you did – but it’s a good idea to have some common ground about what you hope to achieve. Things to think about include:
1. Identifying your attitude to risk. If you’re the kind of person whose hair will turn grey overnight if the stock market so much as twitches, then joining an investment club probably isn’t for you. Some in the group are bound to be more gung-ho than others, but you should be able to agree some common ground.
SAVVY TIP: Investing in the stock market is a risky business. But you can reduce the risk by doing your research thoroughly and always look at the figures behind the headline.
2. Where do you want to focus? If you’re only investing a relatively small amount every month, you don’t have to worry about your money being spread across different sectors (in the same way that you would if you were investing a large chunk of money).
SAVVY TIP: It’s often a good idea to start with companies that you know (retailers that you regularly shop in or services that you make use of). The FYG Leaf investment club has gradually moved towards more ethical and green investments and also look at the environmental impact of companies they invest in.
3. How many companies do you want to invest in? If you buy shares in a limited number of shares, it’s easier to follow their progress, but it also increases your risk.
SAVVY TIP: FYG Leaf investment club uses a website called DigitalLook, which lets you set up a ‘watch list’ of shares you invest in. You’re then e-mailed the company’s share price every day and are alerted when there’s news about the company. You can also register with at the company’s website so you receive emails every time there’s a new press release. There are other websites that offer similar services.
4. How will you decide when to sell your shares? It’s easy to keep hold of shares when you see them roaring away, but you’ve only actually made a profit once you sell. Work out how you’ll strike the balance.
SAVVY TIP: There’s never a perfect time to sell, but don’t assume that by hanging onto your shares you’ll necessarily make more money. Confidence in the stock market or a particular company can plummet in a matter of seconds and take months or years to rebuild.
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