Take time to talk through the type of investments and investment strategy with the group, as this will set the tone for how the club is set up.
Items to consider are:
Risk Appetite and Strategy
What is the consensus among the members regarding the appetite for risk? Are the majority keen on high risk investments or are they looking for a very low risk portfolio of assets? This might also be a blend – i.e. an agreed mix of low risk and high risk investments.
Once the risk appetite has been gauged, agree on a strategy for investing. Even if the appetite for risk is high, you might choose to start investing in low risk while you find your feet as a club. Once your confidence grows, you may then decide to move on to riskier investments. Alternatively you might want to invest everything in high risk assets from day one.
Whichever strategy you select, discuss portfolio diversification too. Points to consider are:
- will there be a limit to the percentage that any single investment can represent of the total portfolio?
- do you require a set proportion of different investment types, such as equity and funds?
- is there a need for an agreed split between different sectors within equity?
Size of Investment
Get an indication of what size investment the club will be making. Remember that there will be costs involved in making investments and these need to be covered by the investment amount. For more information on costs see the ‘Trading Accounts and Stock Brokers’ section of the Investment Vehicle page.
These costs will also represent a larger portion of the investment the smaller the amount. For instance if the cost to make a share trade is £20 and you invest £500, this will be 4% of the investment amount. Increasing the investment amount to £1 000 means the cost will only be 2% and so on, so in this case the relative cost percentage decreases the larger the investment.
Frequency of Investing
How often should investments be made? Are you looking to do this weekly/monthly/every 6 months or other. When deciding on this, take into account the minimum size of investment you will be looking to make.
It might be that you will only be making larger investments, so your frequency of investing will then be based on the agreed buy-in and monthly subscription amount and how long it will take to reach this level. For example if there are 10 members, with no buy-in and a monthly membership of £100 and you decide on an investment size of £3 000 then you will only be able to invest every 3 months.
How will you deal with opportunities that present themselves between agreed investment dates, that cannot wait until the next meeting? Agree on a formal process now.
It might be that the group wishes only to invest in a certain type of investment, like shares in listed companies, but it is worth discussing to see what the preference is. Try to keep this as open as possible, as you don’t want to limit this too early on.
Examples of Investment types could be, but not limited to:
- Listed Equity
- Crowdfunding through sites such as Crowdcube
- Digital Currencies
- Other assets like coins, stamps etc
At a bare minimum illegal investments should be against the Club rules, but it is worth checking whether there are any other investments that potential members might be against investing in. Religious, moral, ethical reasons or even just a plain dislike might mean that a member is very against certain shares or assets and it is worth tabling this at an early stage.
It might well be that this potential member is overruled by the majority who do want to invest in those assets, but this at least gives them the chance to decide whether they can deal with this or whether they would prefer not to join the club.
You might want to agree on a reserve that is kept in cash or other liquid assets for emergencies or buy outs. This could be an absolute amount or even a percentage of the total value of the portfolio.
Dissolution of the club
Discuss the wind up procedures for the club. This should include how the portfolio will be valued and how you will split the proceeds and associated costs.
Agree on when this should happen. Will this be at a fixed point or will there be a trigger point? You might decide that when you have reached a certain valuation of £xxx, you will wind up the club or at least discuss doing so.
Consider what will happen if not everyone in the club wants to wind up.