Are investment clubs still worth considering?

Have you ever beat yourself in regret as you watched a business opportunity come begging and you knew there was really nothing more you could do but helplessly watch it flit by. “If only I had the finance”, you must have said to yourself ruefully. But, there is a saying that sagely goes, ‘the answer to life problems are always concealed around us…” and so it is with business. All we simply need to do is look hard enough, well, perhaps not so hard.

Did you know that, though the regulations governing each may differ from slightly to greatly, your average bank, venture capitalist organization, hedge fund, real estate investment trust (REIT), or even creditor organizations such as the Paris Club, which loans monies to poor nations at an interest rate, all have designs and purposes loosely based on the concept of Investment Clubs?

Investment Clubs by name and design are a culmination of a group of individuals, or in certain cases, even organizations, who come together, combining funds, mostly for investment purposes, with the objective of positive returns on investment. These members typically meet periodically to seek and discuss investment opportunities, making decisions on same, mostly through, a voting process and then proceeding with their stated objective as might be enshrined in their articles of association, a legalized document stating how the organization will be run and each member’s responsibilities.

So, be it a social club which pools funds from its members and loans it right back to them at a small interest fee or one that looks for greater returns in higher-risk investment channels like stocks, cryto trading, property trading or even agricultural trade, Investment clubs are an excellent way of also reducing the risk of financial loss, in the case of a bad investment. They are however excellent ways of meeting new friends and learning of new opportunities that exist and subsequently having a means of easily taking advantage of them without breaking the bank.

So, the next time your hit on a worthwhile investment and think you may not have the finance to pursue it, the video link at the end of this article of an investment club started in South Africa in the eighties by a group of friends with an initial contribution of R10 (Ten Rand) each, might be the spur you need to keenly pursue financial freedom.

These friends, incorporated as the HIGAIN Investment Club in 1984, started off with only three individual members. It has since grown to include seven others, and their portfolio is now worth a whooping R17million (seventeen million Rand), and growing.

Yep, you read that right. Each member, from humble monthly contributions of just R10 each, to which I might add, they collectively agreed that they saw no need to keep contributing to the portfolio after ten years of devout contributions and cautious investing, are now each worth R1.7million. They now simply seat back, enjoy the dividends from their small but concentrated portfolio while still looking out for other high gain opportunities, as their name suggests.

Depending on laid down rules in its Articles of Association, or, in a less formal setting, an Article of Membership, Investment Clubs can invest in next to anything, either legal or even illegal. While most grow their combined wealth through more traditional vehicles as company shares, mutual funds, treasury bills, real estate, junk bonds and direct investment in company ownerships, others have been known to stake in big but risky oil and gas deals, farming/ agricultural projects, next–generation pharmaceutical and cutting edge medical research, weapons manufacture and sale.

While some Clubs run into perpetuity, lasting decades, like HIGAIN, and buy into relatively safe or risk-averse opportunities, others can be informally setup for a specific high return purpose, with firm governing principles, and then managed for a specific period, usually lasting only the lifetime of the investment. Once returns are actualized, the investment is liquidated and divided at an agreed proportion to each member. Investments such as these however are typically high risk and may involve a higher individual outlay than most. Thus it is best to first discuss such opportunities thoroughly, preferably with an expert in the field such as a lawyer, broker or banker.

Though they may not be formally termed investment clubs, some groups have been known to pool resources together to purchase a degenerating vehicle, house or even a private jet, refurbish same and put it back on the market at great profits. And, in certain cases, the circle begins all over again, with members splitting the gains whilst reinvesting the capital.

Either way, before joining or instituting an Investment Club, always certain to read up on or carefully inscribe the rules that must guide each facet of the association. From membership sign-ins to investment research and investing decisions and decision-makers. As these are critical elements that bind the group together, it is best practice to spend quality time to build a solid foundation through which the group and its objectives can grow and blossom into a powerful entity like HIGAIN.

Lessons from an investment club that made R1.7m for each of its ten members –

Brain Essien is a business consultant, with expertise in crowdfunding and business plan/proposal formulation and design, working and living in Lagos State. +234703-444-6041

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