Advantages & Disadvantages of Investment Clubs

Investment clubs are groups who want to pool their resources to invest in securities, real estate or other assets. Getting financially involved with other people always involves an element of risk, but an investment club can offer social and financial opportunity as well. It's important to learn about a club and determine if it's for you before you join.

Advantage: Accessing Minimums

Many large and profitable companies are difficult to invest in with little money. Single shares may cost many thousands of dollars, effectively cutting out the small players. When a group bands together and pools its money, the cumulative wealth of the group opens up opportunities that wouldn't be available to any member individually. A club may also be able to access discounts based on the size of the investment. Because the profits that are made on an investment are a percentage of the money invested, a group investment can realize larger returns for the same amount of red tape and administrative work.

Advantage: Education

The world of investing is mysterious and daunting to many people. Beginning investors are hesitant to get involved for fear of losing their savings. When you join an investment club, you begin interacting with other people who are interested in making their money work for them, and some of them probably know more about it than you do. An investment club can be an enjoyable, sociable and relatively inexpensive way to access information about how to invest successfully. Fellow members of the club may become trusted friends over time, providing you with sources of market information.

Disadvantage: Lost Autonomy

Combining your financial strength with that of other people means that you no longer have complete control over your wealth. Whether your group makes decisions by voting or by consensus, you will have to take all of the other members into account when making an investment decision. If an investment fails or loses money, this can cause animosity and bad feelings between club members. The need to consult with other members about how to proceed may cause you to miss quickly changing opportunities in the market.

Disadvantage: Time and Money

Most investment clubs require their members to pay a certain amount of money every month as a source of capital for the club to invest. While this money will theoretically come back to you along with profits, the requirement to provide it every month can be a financial burden for people on tight budgets. Time is required as well, for going to meetings and for educating yourself about investment opportunities.