A pooled assets investment club is nothing more than what
you probably already think an investment club is although it may sound
unfamiliar or complicated.
In particular, pooled assets means that all the club
members contribute toward a common account, where their money is pooled prior
to investing. By means of their own money, all members retain ownership,
but it's held in the same brokerage account as everyone else's.
The club
treasurer, using club accounting software, keeps track of who owns what
percentage of the club's portfolio and tracks individual members' investment
returns in addition to the return for the club as a whole.
The treasurer
performs a withdrawal and pays out the amount of that member's ownership in
either cash or stocks, when a member decides to leave the club.
You've all put your money to work together, and another
thing that sparks the loyalty for your club that otherwise can be hard to find
are the feelings of trust and a shared mission that come from this joint
effort.
If you're not contributing your money to the club each month, imagining
that your sense of commitment might not be as strong is no stretch. There's
something to be said for feeling obligated to others!
Reduction in the expenses that accompany with your club's
investing is another huge advantage of the pooled-assets model.
If you
personally want to invest $50 a month in a stock that you've studied, the
brokerage commission costs are quite prohibitive. Even if you trade online at
reduced rates, a $15 commission takes quite a big chunk out of your available
investment money.
However, if you're in a pooled-asset club, with 14 other
members also contributing $50, that same $15 commission represents a much
smaller percentage of your $750 pooled investment.
Similarly, expenses for club
accounting software or educational materials are spread across the entire
membership.
For investors who can set aside only a minimal amount in
savings each month, reduced expense is no small matter. Small investors can
accomplish much more while paying proportionally much less as a group than as a
single small investor.
That is one reason why investment clubs are such a
popular way of getting your feet wet in the stock market.
However, we can't hide from the truth that a pooled-asset
investment club also can be a huge pain, particularly for the club treasurer.
Shared investment accounts bring about more complicated accounting practices
than you need for your own personal accounts.
In order to record keeping and
preparing valuation statements for the club every month and tax forms annually,
the club treasurer must be diligent. Luckily, club accounting software
considerably lightens the treasurer's workload, but pooling assets nevertheless
creates an additional layer of complexity.
The problems that are coming from managing monthly member
contributions are the other main problems. Each member is required to make
regular financial contributions, but you can always count on unorganized or
uncooperative members turning theirs in late or not at all.
For the rest of the
club that creates work and stress since reminders, late fees, and sometimes
forcible removal of the delinquent member all require dealing with them
promptly.
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