Why You May Want To Start, Or Join, An Investment Club

By Richard Eisenberg, Next Avenue Senior Editor

With bank accounts and CDs paying bubkis (Yiddish for nothing) and bonds yielding not much more, the stock market has been about the only way to earn something on your money lately (up 18% overall in 2021). But what if you’re insecure about investing in stocks? Then, you might want to consider starting, or joining, an investment club with a small group of others.

Investment clubs are the topic of the new episode of the “Friends Talk Money” podcast I co-host with personal finance columnist and author Terry Savage and Wealthramp founder and “MoneyTrack” public TV host Pam Krueger. (You can hear the whole episode wherever you get podcasts.)

“Our investment clubs are not places to put anybody on a pedestal or to put you down for not knowing. We just want to be a trusted source in a safe space for you to come ask whatever question you want. Because we’re all in this together,” Ionnie McNeill, director at Better Investing, the website of the National Association of Investors, which is the national nonprofit home of investment clubs, told Krueger.

With an investment club, a bunch of people get together each month — often virtually these days — and then buy or sell one or more stocks. Often, the club members invest as little as $25 a month; each club makes its own rules.

The Boom in Interest in Investing

Interest in investing has really grown recently. In 2020, small investors made up nearly 25% of the stock market’s activity, according to Joe Mecane of Citadel Securities. In 2019, that was just 10%. The Hearts & Wallets financial research firm 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 terrific way for your children or grandchildren to learn about the stock market when you have a multigenerational club. “What a great way to start a younger generation on a lifetime of interest in the stock market,” she noted.

That’s what attorney Bob Wynn, of Madison, Wisc. is doing.

“In the year 2000, I stopped a family Christmas dinner with my own family, including my sisters and their kids. So, it was eleven of us and I said: ‘We’re going to start an investment club,’” Wynn says.

The family began investing $25 a month per person; two children have been born since then, so the club is now up to 13 members.

“And our portfolio is up to a hundred and eighty-five thousand dollars, with about forty-five thousand dollars taken out for a new birth and a new home,” notes Wynn, proudly. “We know if we can get this carried through successive generations, just how powerful that will be.”

Wynn heads up a group called CLIMB that’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 that: A recent Transamerica Center for Retirement Studies report found that only 32% of boomer workers surveyed said they have a great deal or quite a bit of understanding of asset allocation principles (how much of your portfolio should be in stocks, bonds or cash) relating to retirement investing. And 66% of workers surveyed by the Principal financial services firm said they’re 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 70s known as The Beardstown Ladies published a book about the success of the club they’d formed in 1983. They boasted about beating the stock market handily, claiming annual average returns of 23.4%.

The Beardstown Ladies’ Funny Numbers

Alas, the numbers were too good to be true. Due to some inaccurate performance calculations, The Beardstown Ladies actually earned 9.1% a year, less than the Standard & Poor’s 500 during that period. Still, 9.1% a year is a mighty fine investment return.

Krueger says the number of investment clubs “seems to be exploding right now,” partly due to the frothy market and because apps and sites like Voleo.com, IClubCentral.com and Better Investing make it easier to start and run them.

Savage, however, reminded “Friends Talk Money” listeners of another time investment clubs were super popular. 

“The great peak in investment club membership occurred in 1998 and 1999, when over six hundred thousand individuals became members,” she said. “Now, you remember 1998 and 1999 was just before the dot com bubble burst.”

In other words, that’s when so many of the new internet-company stocks nosedived.

“So, maybe the very fact that we’re talking today about investment clubs is a market signal — a signal that membership and interest in investment clubs peaks just at the top of the market,” Savage said. “Who knows? We’ll find out.”

Krueger’s a fan of investment clubs because she says they can be a confidence builder for new investors.

Learning Through an Investment Club

“Learning in that group setting can help you feel supported because you’ll see you’re not the only one that’s asking the most basic questions,” she said. “There’s always going to be somebody in the group that’s going to know less than you and people in the group who are going to know more than you that you can learn from.”

McNeill, who’s been involved with investment clubs since she was a volunteer for one in her teens, says the clubs can be very educational and informative.

Club members might “talk about an article they read or a book or a podcast they’re listening to about finance,” she noted.

I think investment clubs can also help keep you from making mistakes out of stock-market fears. If the market plunges and you’re investing on your own, you can be tempted to pull your money out. But club members can remind you that you’re investing for the long term and that markets go up and down, but up overall historically.

Incidentally, Wynn says research shows that women-run investment clubs perform better than “co-ed clubs and certainly better than all-male clubs.”

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