Guy Knight, sales and marketing director for The Share Centre, explains why investment clubs are ideal for sharing financial expertise, pooling capital and, hopefully, making money

From beginners to the most experienced stock market players, we can all learn something new about investing. And what better way to do that than by forming an investment club with people who share your passion for successful investing?

I’ve been involved in an investment club for more than 14 years and have been chairman for most of that period. During that time, we have generated a tidy sum and developed great friendships. Here are my top tips for getting started.

Friends and colleagues only

Getting the right mix of people at the beginning is key to the longevity of the club. Start with people you know and trust, such as friends and work colleagues, and avoid advertising membership to strangers. Fourteen years on, nine of the founder members are still involved and new members have always been recommended by club members.

Expertise not essential

You don’t have to be a share-dealing expert to join an investment club. Sharing knowledge and pooling your expertise, while having fun in the process, is a great way to invest.

How many members?

There is no magic number, but the venture could be short-lived if there are too few people involved. Conversely, a large group might lead to decision-making problems at meetings. As a guide, we recommend a maximum of 20 members. Mine started with around 20 and is now has 11 members, which is a more manageable size.

When and where to meet

Club members tend to meet at least once a month, which generally suits most people with busy lifestyles and other commitments. Meetings often take place in a local pub, at someone’s house, or at a mutually convenient location after work.

When arranging a meeting point, make sure you find a quiet spot with enough room for everyone.

How much to contribute?

Ideally, agree the same monthly contribution at an affordable level for everyone and start with a fixed joining fee. You don’t have to invest all of the money – some of it often funds food and drink at each meeting, or pays for a Christmas party.

Managing the day-to-day finances

You should open a bank account for the club, which can take time due to anti-money laundering regulations, and you will need to take along your club’s Articles of Association.

As with opening any bank account, check out the charging structure and how accessible it is – can you view the account online and is it easy to make payments and draw out money?

Ask members to pay their contributions directly into the club’s bank account by setting up standing orders for a given date. This will make it much easier for the treasurer to keep track of the money.

You can then transfer the funds to your club’s dealing account in one transaction.

Involve everyone and have fun

While successful investing is the main aim, making sure everyone has a part to play is equally important. Clubs with members who are actively involved tend to be the most successful.

Regularly ask members for ideas, make sure they are involved in every decision and encourage them to keep an eye on their investments in between meetings. Always make use of their areas of expertise and financial knowledge when deciding the club’s investment strategy.

Mixing business with pleasure is just as important because it helps build trust between members. Plan well in advance – some clubs have a social secretary and put money aside to pay for group activities – and get everyone involved to help create a great team spirit.

My top tip

Agree a tracking stop loss or stop loss for every investment you make.

Many clubs find selling difficult – it’s either going to go up even more or there’s no point taking a loss as it’s going to go up! Trust me; you’ll be more successful if you take emotion out of the picture.

Originally published August 2012.