Starting an investment club can seem pretty easy. You round up a few friends, open a bank or broker account, select the investment vehicles, put some money in it and off you go. How hard could it be, right?
However, there are other important elements one should consider as well.
A common goal
The most important is a common goal. Stokvels (investment clubs) have been part of the township economy for forever and a day. It’s a great way to pull resources together to achieve more.
Stokvels are mainly used to help people save money for December festivities. That in itself is awesome, but it can also grow to serve another purpose. However, members should have the same or similar goals when joining a particular club. You shouldn’t join a club when your goal is to invest for a decade, while theirs is just to have money for the festive season. There are tons of different stokvels which save and invest in various assets (property, stocks, bonds, cash at the bank etc.) – find or start one that is inline with your personal goal.
Next up is the rules of engagement (also called the constitution). You may have a common goal, but you might have different ideas on how to achieve the same goal or have a different risk appetite. The stokvel rules need to be drafted and signed by every member. It’s important to discuss as many situations as possible before setting the wheels in motion. Money is a very sensitive subject, and you want to have this uncomfortable conversation before engaging in the club.
Every single detail should be accounted for in the constitution and should be clear to everyone. Don’t be fancy with legal terminology. Communicate in a way that everyone can understand.
The rules must state how you are investing, and the person responsible for executing the investment (Chair or Treasury) must do as told, not as they think. No prerogatives allowed.
Understanding = Participation
Finally, every member needs to understand the club’s investments (asset class, strategy, risk etc). It may happen that members don’t fully understand everything, and that is why the club should meet regularly to learn from each other – especially in the beginning. Regular meetings are particularly important for wealth generation stokvels.
Technical steps to starting an investment club
- Find people with the same financial goals as you.
- Draft a constitution, name the club and elect an executive committee (record minutes of that meeting).
- The Chairperson, Treasury and Secretary will open a bank account in the club’s name.
- The bank will require FICA documents of these three members (authorised signatories).
- Refer to the constitution and the minutes of the last meeting.
- Make the first deposit to activate the account (I suggest having a joining fee to pay for this step).
- The Chairperson/Treasury can also open a broker account in the name of the club.
- Similar documentation as the bank will be required, however, EasyEquities requires FICA documentation for every member. So check with your selected broker what their requirements are.
- You will get forms the executive needs to sign.
- Now you’re set up and ready to start saving.
There are countless websites and blogs to help members understand the investment world, here are three of them:
Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.
Follow Njabulo’s journey here every month. You can also follow his trading journey by listening to his Village Trader podcast.
Find him on Twitter: @njabulo_goje.