Your club could be a winner

If you're looking for a way to improve your wealth and your social life, an investment club could be just the ticket.

Thousands of people, from stock market novices to financial experts, have set up or joined clubs in the past few years.

In 1997 there were about 300 clubs in the UK ; by 2003 that number had ballooned to more than 10,000. Atleast 3,000 of these are active, trading around three times a month.

What is an investment club?

It's simply an organisation where people can get together to pool ideas and money for the purpose of investing on the stock market.

Why not go it alone?

The biggest benefit of investment clubs is that they tend to be fun and interesting - and not just when you are making money.

At the heart of any good club is a fun and social environment - you don't want to ruin that by staking everyone's futures on your success

Whether you're a stock market novice or a seasoned investor, chances are you'll find new and challenging ideas among your fellow club members.

The other major benefit of forming a club is that it will allow you to invest small but regular sums of money in the market.

By pooling small amounts of money with other members before trading, stockbrokers fees are diluted and their impact on your finances eased.

No matter what your budget, a club should give you the chance to invest in the stock market, learn about share trading and potentially make some money.

How many people do I need?

There's no minimum number of people needed for an investment club.

ProShare, a non-profit making company which promotes investment clubs in the UK, recommends you have at least five members.

This should give you a good spread of investment ideas.

Most clubs are set up as partnerships, for tax and simplicity purposes, which means the legal upper limit on members is 20.

What are my club's legal obligations?

As we said, most clubs are run as partnerships. This cuts out the expense of forming a limited company and avoids the hassle of conforming to the dizzyingly complex corporate tax regime.

Thankfully the Inland Revenue seems happy with this arrangement and has even set up a simplified taxation scheme for clubs.

If you do set up as a partnership you should be aware that the partners, namely every member, are financially and legally responsible for the club's actions and commitments.

In short, if the club runs up bills you are all responsible.

You should also make sure that at least a couple of members have a passing knowledge of the Financial Services Act of 1986 - try to get a copy of it.

Strangely enough, the aim here is not to conform to the Act but to make sure you conduct yourself in a way that avoids coming under its control.

Members of investment clubs are exempt from the Act as long as they are investing on their own or their club's behalf and there is no payment involved.

You should also make sure that you aren't giving investment advice to non-club members as this will bring you under the Act's authority.

There are a few other traps for beginners - too many to go into here - but they are all outlined in ProShare's Investment Club Manual, which provides a good guide to the ins and outs of investment clubs.

For more information take a look at the ProShare website.

How do I get started?

The more work and planning you put into your club before launching it the smoother the sailing will be.

First, decide who you want to include in your club. It could be your workmates, family or a group of friends.

Before the first meeting send them a letter outlining your club's constitution and draft rules (you can get standard copies of these from ProShare).

And don't forget to include an invite and details of where and when the meeting will take place - it will be a lonely affair if you don't!

At the first meeting you're going to need to elect members to run the club.

You'll need a chairperson, treasurer and secretary. You'll also need to appoint nominees or trustees who can carry out business on behalf of the club.

You might want to authorise them to carry out transactions in between meetings using their judgement.

If one of your shares is falling sharply, you might want to sell - but it could be too late if you wait to get all the members together to decide what to do.

Before you start investing you'll also need to appoint a bank to handle your money and a stockbroker to buy and sell your shares.

Make sure you do some research on the prices and services available before committing to these relationships, and look out for special deals for investment clubs.

Click on the box at the bottom of this page to get an idea of how much stockbrokers charge.

How often should you meet?

There's no rule. Once a month is a simple number and not too taxing on people's time, but this might be too often or too infrequent for you.

The most important thing when it comes to getting together is to make sure that people actually turn up.

Planning meetings well in advance and holding them at a place where members feel comfortable will go a long way to ensuring a good attendance.

Many clubs meet at their local pub or at other members' homes. The choice is yours.

How much should we invest?

Remember, at the heart of any good club is a fun and social environment - you don't want to ruin that by staking everyone's futures on your success.

A monthly subscription of anything between �10 and �50 is quite typical but there is no hard-and-fast rule.

You'll also want to get an initial kitty together so you can start investing sooner rather than later. ProShare recommends at least �500 to get you started.

What about the biscuits?

Most clubs will have extra expenses be it stationery, biscuits or lager.

From the outset you might want to establish a small fee to cover these extras. If you turn out to be more frugal than you thought, you can always agree to invest some of the leftover money.

And that's it. Good luck, have fun and let us know how you're getting on.