Are you unsure about investing? Join the club, an investment club.
With bank accounts and CDs paying bubkis (Yiddish for nothing) and bonds not making much more, the stock market has been pretty much the only way to make anything out of your money lately (up 18 % in total in 2021). But what if you are unsure about investing in stocks? Then you might want to consider starting or joining an investment club with a small group of other people.
Investment clubs are the subject of the new episode of the “Friends talk about moneyPodcast that I co-host with personal finance columnist and author Terry Savage and Wealthramp founder and public television host âMoneyTrackâ Pam Krueger. (You can hear the entire episode wherever you get podcasts.)
âOur investment clubs are not places to put someone on a pedestal or put you down for not knowing. We just want to be a trusted source in a safe space for you to come and ask whatever question you want. Because we’re all in the same boat, âIonnie McNeill, director of Better Investing, the website for the National Association of Investors, which is the national non-profit home of investment clubs, told Krueger.
With an investment club, a group of people get together every month – often practically nowadays – and then buy or sell one or more stocks. Often club members invest as little as $ 25 per month; each club sets its own rules.
The boom in investment interest
Interest in investing has really increased recently. Small investors now represent nearly 25% of stock market activity, according to Joe Mecane of Citadel Securities. In 2019, it was only 10%. Financial research firm Hearts & Wallets says that at the end of 2020, small investors controlled $ 68.3 trillion in investable assets, an all-time high.
An investment club, Savage said, can also be a great way for your children or grandchildren to learn about the stock market when you have a multigenerational club. âWhat a great way to launch a younger generation into a lifetime of interest in the stock market,â she noted.
That’s what attorney Bob Wynn, of Madison, Wisconsin, does.
âIn 2000, I stopped a family Christmas dinner with my own family, including my sisters and their children. So there were 11 of us and I said, ‘We’re going to start an investment club,’ âsays Wynn.
The family started investing $ 25 per month per person; two children have since been born, so the club now has up to 13 members.
âAnd our portfolio goes up to $ 185,000, of which around $ 45,000 is for a new birth and a new home,â Wynn proudly notes. “We know if we can pass this down through successive generations, how powerful it will be.”
Learn more: The miracle of capitalization: how to invest
Wynn leads a group called TO CLIMB UP it’s partnering with Better Investing to expand access to and education about the stock market (and make investing fun, too).
There’s a huge need for this: A recent report from the Transamerica Center for Retirement Studies found that only 32% of baby boomers surveyed said they had a good or fairly good understanding of asset allocation principles ( how much of your portfolio should be in stocks, bonds or cash) related to the retirement investment. And 66% of workers polled by financial services company Principal said they were concerned about market volatility in their financial accounts.
Although investment clubs started in the 1950s, the public really took notice in 1995, when a group of women in their sixties known as The Beardstown Ladies published a book about the success of the club that they had formed in 1983. They boasted of having beaten the stock market easily, claiming average annual returns of 23.4%.
Funny figures of the ladies of Beardstown
Sadly, the numbers were too good to be true. Due to inaccurate performance calculations, the Beardstown Ladies actually gained 9.1% per year, less than the S&P 500 SPX,
during this period. Still, 9.1% per year is a great return on your investment.
Krueger says the number of investment clubs “seems to be exploding right now,” in part because of the sparkling market and because apps and sites like Voleo.com, IClubCentral.com and Better invest facilitate their start-up and execution.
Learn more: How to invest: how to get started
Savage, however, reminded listeners of “Friends Talk Money” of another time when investment clubs were very popular.
âThe big peak in investment club membership occurred in 1998 and 1999, when over 600,000 people joined,â she said. “Now you remember that 1998 and 1999 were right before the dot-com bubble burst.”
In other words, this is when so many new internet company stocks plunged.
“So maybe the very fact that we’re talking about investment clubs today is a market signal – a signal that membership and interest in investment clubs is peaking right at the top of the market.” , said Savage. “Who knows? We’ll find out.
Krueger is a fan of investment clubs because she says they can be a confidence factor for new investors.
Also see: What 1970s inflation can teach us today
Learn through an investment club
âLearning in this group setting can help you feel supported, because you will find that you are not the only one asking the most basic questions,â she said. “There will always be someone in the group who knows less than you and people in the group who know more than you that you can learn from.”
McNeill, who has been involved with investment clubs since volunteering for a teenager, says clubs can be very educational and informative.
Club members can “talk about an article they’ve read or a book or podcast they’re listening to on finance,” she noted.
Also see: Here’s how to start moving a ’90s 60/40 portfolio to a Yale-inspired future
I think investment clubs can also help you avoid making mistakes because of stock market fears. If the market plunges and you invest on your own, you may be tempted to withdraw your money. But club members can remind you that you are investing for the long term and the markets go up and down, but historically up overall.
By the way, Wynn says research shows that investment clubs run by women work better than “co-ed clubs and certainly better than all-male clubs.”
Richard Eisenberg is senior web editor for Next Avenue’s Money & Security and Work & Purpose channels and editor of the site. He is the author of “How to Avoid a Mid-Life Financial Crisis” and has served as the personal finance editor at Money, Yahoo, Good Housekeeping, and CBS Moneywatch.
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