Exploring Retirement: Jeanette Lewis

Jeannette Lewis, contributorJeanette is one of the regular writers for Exploring Retirement. Each month she contributes an inspirational article on living life to the full in retirement.

Investment Clubs - Not Just for the Wealthy

After retirement, many elders join various social activities for socialization and stimulation. Along with book clubs and exercise classes, popular activities include bridge, chess, checkers, mahjong, bingo, poker, billiards, golf, choirs, dancing, and walking.

Less common is participating in an investment club. This is unfortunate as many retired people worry about finances. Will I outlive my retirement savings? Will I be able to afford health care costs as I grow older? How do I understand options for investing?

Too often a financial advisor or a banker or a trusted friend are sources of advice about money management and investing. Financial literacy is regarded as complex and difficult; thus it is left to experts. Educating oneself about money matters is a valuable skill; it can prevent one from taking "expert" advice without question.

Investment clubs are a resource to help people attain financial literacy. Financial literacy helps when managing retirement income and making financial decisions where terminology can be confusing and many options are available. Investment clubs offer an excellent educational platform for learning about the stock market, bonds, treasury bills, real estate trusts, and annuities.

Investment clubs are often perceived as only for the wealthy who have large sums of money to play the stock market. This may be true of some clubs but most investment clubs exist as a method for participating in the market without risking large amounts of money. People with limited funds and fixed incomes can become part of a larger pool that makes joint investments.

What is an Investment Club?

Basically, an investment club is a group of people who agree to pool money and invest it - hopefully for profit. An investment club is a legal entity that registers with the securities authority of the jurisdiction in which it operates and adheres to tax laws and regulations. Most clubs operate with 10 to 30 members who contribute an initial sum of money that is used for investments. Many clubs also require additional monthly or annual contributions.

Investment clubs exist throughout the world and take many forms, often without the aforementioned legal structure. Many operate informally - on a trust basis. For example, in the Caribbean and African cultures, people join a sou-sou for forced weekly savings and a "no questions asked" emergency loan structure. Underserved groups including women and minorities pioneered these informal saving and lending pools to finance projects typically rejected by banks and credit unions. In North America, young people often join "money" clubs to understand basics of budgeting, saving and financial decision making.

Established investment clubs can grow to the point of owning holdings in the millions of dollars, especially if profits are not periodically distributed to members. Although most clubs focus on stock investments, some are established for real estate holdings, mortgages, mutual funds, or futures.

Why join an Investment Club?

Most clubs strive to make money but learning about various types of investments and investing styles is an important by-product. The financial education from active participation benefits consumers of all ages and income levels.

A major benefit of belonging to a club is learning the basics of picking stocks. Members share ideas and perspectives for analyzing market data, understanding prospective investments, evaluating companies, reading financial reports, and interpreting market trends. Most clubs use key financial ratios for evaluating companies to make "buy" and "sell" decisions.

As well as gaining financial literacy, most investment clubs offer a social component that makes learning fun. Understanding how money works develops confidence in setting financial goals, budgeting, managing pension income, and investing - even for those on fixed incomes.

Many elders distrust the stock market preferring guaranteed investments such as savings accounts or government bonds. Many believe that the market is too risky for precious retirement savings; certainly no-one should take unnecessary risk with hard earned money that will be needed to fund the remaining years of life. Knowledge is key to understanding available options without taking silly chances or falling prey to scams.

A Personal Experience

Two years ago I was invited to join an established investment club that focuses on the stock market. The club exists as a legal entity with bylaws defining operating rules including how to join, how to leave, and how much each member pays for one share to join the club. Membership is capped at 22 members who each hold one share. Meticulous investment and accounting records are kept by the treasurer; annual tax forms are submitted after an auditor reviews the books. Profits (if any) are paid out periodically. An online brokerage firm is used to purchase investments.

There is a monthly meeting to review financial reports and track stock holdings. Each member analyses one or two stocks in the club's portfolio, reports on performance, and recommends further purchases or sales. Occasionally there are educational presentations. For example, at the last meeting an experienced investor described how to understand the common ratios used by financial analysts. Earlier in the year, a member discussed cryptocurrencies and bitcoin investments.

This club is for women investors of diverse backgrounds. There is a social aspect as meetings happen over lunch at a local golf club. Other social events such as a summer barbecue and a Christmas celebration help to establish relationships among members. About half of the members are retired; the others are young professionals seeking knowledge about investing strategy. A few members are experienced and savvy investors who generously share their expertise but most of us come without specific financial expertise. Participation requires time and effort from everyone. The benefit is enhanced practical skill at making investment decisions.

The club does not provide investment advice; it recommends that personal decisions be made with the assistance of a financial advisor. However, the knowledge gained provides the groundwork for informed discussions when making personal financial decisions.

Finally, it's important to remember that nobody cares about your retirement money as much as you do so learning about money matters. No matter how much money you have, an investment club will improve financial literacy as well as providing an interesting social activity. Financial literacy affects quality of life and strengthens confidence in decision making about money. It's never to late to educate yourself!