An investment club in simple words is a group of like minded people who come together and pool their resources to invest in something that they could not afford if they were alone.
Let's take for example a group of 5 friends come together to form an investment club with the aim of investing in real estate.
The 5 friends agree to each contribute a K2000 towards the club for a period of 6 months. Then after that they will buy land then contribute again to make the land productive.
K2000 × 5 members = K10,000 a month
K10,000 × 6 months = K60,000
With a K60,000 they go to buy good traditional land which they plan to turn into a poultry farm.
After buying the land they contribute again for 6 months to make K60,000 again as their initial capital for starting the poultry business.
Then they decide to reduce their monthly contributions to K500 per member this month is meant to support the poultry business until it can be able to sustain its self.
They decide that this investment club will be for 3 years and if it proves profitable they will continue in it otherwise they will end it.
They hire an experienced poultry farmer to run their farm since none of them is an expert in that business. While they are growing the birds they are already learning about how this industry works and how to cash out from it.
They are currently working on a way to market and innovate their business so that they get an advantage from their competitors.
Do you have friends who you can create an investment club with? Mention them here.
Tips to make it successful
1. Work with people you like
Money is a sensitive issue that's why you need to do it with someone you like and respect someone who is objective about money not emotional people. Don't do it with friends who are not reliable.
2. Define a legal structure for your investment
Since you are putting money together, you need to define a legal structure so that everyone's money is safe. And as a legal entity it will be easier to invest as opposed to individuals. Remember the goal of the investment club is to make investments.
3. You need to all be aligned on your financial goals
Discuss upfront what your goals are because for some they might have a short term goal while you have a long term goal. Some will want to own assets while others will want to have cashflow within 3 months.
Its important that you do it with people who are aligned with your goals otherwise it won't work.
4. Define the contributions
Define a contribution that works for every member of the club. Just because you can afford to contribute a K10,000 a month does not mean that everyone in the club can. Settle on a contribution that each member can afford so that everyone becomes an equal member of the club.
5. Invest in opportunities that are safe and guarantee a return
Rule of thumb do not invest in things you don't understand you will just lose your money. If you don't have an experienced investor in your club you can hire one so that they advice you on how to go about it.
To learn more about investment clubs and how to set them up correctly, get my book which is selling at K50. To get a copy WhatsApp +260979883216.
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