The story (so far) of an investment club

  • Written by Snowball Effect
  • Published on

Interested in dipping your toes in the higher risk investment water? Already familiar with investing but wanting to collaborate with others and dabble in a broader range of investments?

Forming or joining an investment or share club is a simple and fun way of doing so without having to commit a lot of your own money. Getting together with family, friends or work colleagues to pool your money and share ideas can make investing an enjoyable and rewarding experience.

Along with a group of close friends, we started an investment club around 5 years ago, with the aim of sharing investment ideas, throwing together some pocket money and having some fun.

Our main motivation was that by pooling our money we were able to do more with less. By increasing the scale of our investment amounts and sharing the cost across the group, we are able to lower transaction fees and gain access to investment options that would otherwise not be available or are just too costly for smaller investments. Together, we each have a small slice of multiple investments, rather than individually pinning our hopes on the one or two investments we could afford to make on our own.

We were also keen on tapping into the many interesting characters and backgrounds that made up our motley crew of nineteen. In an informal way, via our private Facebook page, we put forward ideas, discuss the merits and risks of various investment options, and vote on them. Collectively, we have been able to increase our understanding of different investment types and become aware of opportunities many of us would not have otherwise considered. The range of our group's investments now includes NZ, UK and US stocks, invoice factoring, bitcoin (more on this shortly) and unlisted equities through equity crowdfunding.

Investment advice always hammers home that point that investing is a balancing act between risk and reward. Just as our costs are lowered by sharing them across the group, so are our risks.

We had a lucky strike when we bought 20 bitcoins at $100 per coin and over the following 8 months the price rose to just over $1000 per bitcoin. We were ready to party like the Wolf of Wall Street... Unfortunately, the day we submitted our sell order was exactly one day before our bitcoin "bank", Mt Gox, became insolvent. Our bitcoins were frozen and we have never been able to recover any of our money.

If I had made this investment alone, I would have lost a sizeable chunk of my hard earned savings and it would have been a very bitter pill to swallow. But as a group, although we were disappointed at losing our investment, per person we only suffered minimal losses and we still had a number of other investments in play and some cash in the bank to use in chasing the next idea.

Of course, this approach to investing is not for all and it is worth weighing up your priorities and financial goals before going down the investment club route. Before starting our investment club, we made sure everyone was on the same page in terms of expectations.

Our goal wasn't to create some pension fund or a get rich scheme but rather a hobby and social activity meant to reap more than just financial gains. Members were at different stages in their lives, some at university, some in first jobs, some saving for a house, and some starting families. We agreed on a weekly contribution amount that was a happy medium between making a commitment on the one hand, and not being anyone's primary savings option on the other.

A key part of ensuring that disagreements and misunderstandings would be avoided and not get in the way of our personal relationships, was putting in place a structure that governs how decisions are made on issues such as investment choices and entry to and exit from the group. It was also important to make sure everyone was comfortable with having decisions about their money being taken out of their hands.

For our investment group, working as a team and investing together has been very rewarding in many ways - socially, educationally and financially. Through discussion and debate we come to better decisions than we would make on our own. We also have more money at our disposal to act on those decisions.

If you are interested in learning about investments, sharing knowledge and ideas, and doing something more with your money than saving to buy a property, then an investment club is a worthwhile option to consider.