For nearly 25 years, the ups and downs of the Dow Jones, Nasdaq, and S&P 500 have buffeted my financial outlook, making me queasier at times than a rider on Cedar Point’s Maverick roller coaster. I’ve felt I owned the world during market highs, and like a 1929 ledge diver as markets plunged.
I survived the crash of October ’87, the bursting of the tech bubble in early 2000 and the Great Recession of 2008-10. And through it all, I went right on routinely injecting fresh cash into my stock portfolios via dollar-cost averaging.
I thought I’d become inured to the fear that grips ordinary investors, spurring them to bail from the market at inopportune times. But the wild upheavals in the market in recent weeks have threatened to have even me pouring on the Maalox. I can only guess at the trepidation gripping would-be investors who know they should begin investing in equities, but can’t quite stomach the thought of their hard-earned dollars turning to dust.
I have a suggestion that may make it easier for them to get started, and that is to launch an investment club, or arrange to join an existing investment club.
Though I’ve never been a member myself, it’s not for lack of wishing I could be. Participating in an investment club has always seemed like it would be a fun and beneficial activity. Having produced a number of articles for different publications on how to start and run an investment club, I’ve talked to myriad people who spoke of their investment club participation as one of the wisest — and most enjoyable — things they’ve ever done.
Investment clubs defined
So what is an investment club? It’s a group of individuals who get together every week or every month to pool their money and jointly invest in different stocks they have researched. In a number of instances, investment clubs have been sustained for years, and have earned their long-term members not-inconsiderable sums.
But if you think the main benefit of investment club membership is making money, think again. From what I’ve heard from veteran participants, profits go far beyond cash. Here’s a look at some of the ways clubs make their members richer in dollars, and in other ways.
Learning the markets. Investment club members don’t just guess what stocks to pick. In most clubs, members are assigned to research different stocks, and must come back to their next meeting with a thumbs up or down on putting their club’s money in those stocks. Undertaking this activity repeatedly, and learning from other members, they build skills in how to analyze equities — and become informed investors. In the end, the club becomes a mechanism to, first, educate the uninitiated, and then to get them investing.
Studies have shown that within a year of joining an investment club, many beginners are not only investing through their clubs but on their own as well.
Thinking globally. Members gain a broader understanding of the world. They begin to take greater interest in domestic and international events, political upheaval and demographic and consumer trends, because all can impact their choice of when and where to invest.
Savings/retirement focus. Most Americans don’t put enough money into savings accounts, and don’t do enough retirement planning. The days when they’ll need savings or retirement funds creep up, and by then it’s too late to accumulate a nestegg.
By getting members focused earlier on savings and retirement issues, investment clubs help members develop very positive wealth-accumulation mindsets. They are expected to attend meetings, meaning they must put aside cash for the pool on a regular basis. Their membership helps them master the discipline of saving a lot — a little at a time.
Profitable field trips. In a number of investment clubs, members go beyond reading and surfing the net for information about companies. They go out on jaunts as a club and visit local brokerages, to meet their officials and get their investing insights.
Forging friendships. Just as does a ski club, an amateur theater group, or your local beer league softball team, an investment club gets you out of the house, meeting other people and building lasting friendships. Investment clubs stage holiday parties and summer picnics, and typically the socializing is paid for from profits generated by the club’s own wise investment moves. Many clubs also throw celebrations when the value of their portfolios has climbed to certain pre-determined dollar levels. When this happens, they forgo the monthly meeting and party down, to remind themselves of why they invest.
While it’s possible to join an existing club, that’s not as easy as gathering some friends and starting your own. The Madison Heights, Mich.-based National Association of Investors Corporation (NAIC), a non-profit organization focused on investor education, offers tips to get you started at its website, www.betterinvesting.org. If you’re timid about sticking your toe in the stock market, remember… There’s courage — and strength — in numbers. And joining an investment club may be just the move you need to gain those critical traits.
Note from Nickel: If you’re a cost-concious, buy-and-hold investor that doesn’t have a taste for individual stocks, then I would suggest getting active in an online discussion group such as the Bogleheads Forum. They even have local groups so you can meet up with other like-minded folks.