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  1. #1
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    Default Share club starting out - your wisdom please

    Hi all,

    Myself and a group of 5 close friends are in the early stages of forming a share investment club.
    It will begin with a small upfront payment ($500-1000 each perhaps), followed by monthly deposits of approximately $100.

    For those of you out there who have been/are involved with a share club, do you have any pearls of wisdom to know when starting out?
    Would you recommend starting a company or a trust?
    Would you recommend having a constitution or deed drafted, and does anyone have an example deed/constitution available?

    Cheers!

  2. #2
    Advanced Member BIRMANBOY's Avatar
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    You may be close friends now.....good luck. I have difficulty persuading myself to do something let alone attempt that on 4 other people. I have no personal experience but have talked in the past with people who were involved. General consensus (well 2 opinions anyway) was unproductive because of different risk thresholds, different levels of knowledge, different financial circumstances etc.etc etc. I believe they drafted some sort of constitution which they all agreed on. This was in the US not NZ however so best do some research or buy an hour from an accountant.
    Quote Originally Posted by heisenberg View Post
    Hi all,

    Myself and a group of 5 close friends are in the early stages of forming a share investment club.
    It will begin with a small upfront payment ($500-1000 each perhaps), followed by monthly deposits of approximately $100.

    For those of you out there who have been/are involved with a share club, do you have any pearls of wisdom to know when starting out?
    Would you recommend starting a company or a trust?
    Would you recommend having a constitution or deed drafted, and does anyone have an example deed/constitution available?

    Cheers!
    www.dividendyield.co.nz
    Conservative Investing and dividend producers...get rich slowly!
    https://www.facebook.com/dividendyieldnz

  3. #3
    Divorced from logic Hectorplains's Avatar
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    http://www.nzherald.co.nz/personal-f...ectid=11306192

    I found this a good outline of the positives and pitfalls. There are constitution and deed templates on-line e.g.

    https://wiki.timetotrade.eu/Investment_Club_Constitution_%26_Rules
    https://wiki.timetotrade.eu/Investme...b_Constitution
    Last edited by Hectorplains; 02-05-2016 at 06:28 PM.

  4. #4
    percy
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    I think you may find a company structure is best.
    But,But,But,But,But<but.A company needs to file tax returns,etc.
    Unless you have an accountant as a member, the paper work will prove too much.
    Limit your numbers to five.
    I belonged to two share clubs.One ended up with negative shareholders funds in the 1987 crash,while the other just survived.
    Both made a lot of money in the 1990s,and were good learning vehicles. We disbanded both because of the registers' requiring tax numbers,and the paper war looked to be about to consume all our time,leaving no time to talk about shares.
    You need to make provision for a member having to leave your group.Whether someone else buys in,or you sell enough shares to pay that person out.
    I now meet up with two or three friends for a morning tea and discussion.

  5. #5
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    All great stuff, thanks.

    We are all in similar circumstances and have similar expectations and risk profiles. We'll likely stick mainly to index funds with perhaps 10% for speculative type investments.

    Once we are all on the same page regarding investment strategy and diversification we'll draw up a constitution/deed. Following that we will undertake company creation, bank account creation and accumulation of funds. Anything I am missing?

  6. #6
    Guru
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    With the amount of money you are planning on investing, will you cover the administration costs of forming and running a company. Annual company return, tax returns etc. Your $5,000 to start with and $6,000 in the first year. Total of $11,000 earning about 3-4% dividend income won't cover all your running costs.

    I always subscribe to the thinking of why ruin a good friendship by going into business together.

  7. #7
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    Quote Originally Posted by 777 View Post
    With the amount of money you are planning on investing, will you cover the administration costs of forming and running a company. Annual company return, tax returns etc. Your $5,000 to start with and $6,000 in the first year. Total of $11,000 earning about 3-4% dividend income won't cover all your running costs.

    I always subscribe to the thinking of why ruin a good friendship by going into business together.
    I must be naive as to the running costs of this sort of investment group. $45 for annual filing return. We have an accountant in the group and do not anticipate requiring a lawyer at present. Keep in mind that if there are additional fees we could always use the accumulated weekly deposit from each member to pay for this on an as needed basis.

  8. #8
    Legend peat's Avatar
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    I would start to query the point of banding together to buy mutual funds.
    The way I see it the main point of pooling is to reduce transaction costs as a % hit, and to gain diversity. These are actually achieved simply by buying a mutual fund.

    So you could buy funds individually , and pool the money to buy riskier stuff such as specific shares, or warrants or options.

    Or just have the club purely for the purpose of discussion and let everyone transact themselves. that way your meetings are about investment and not paperwork.

    Just my comments :+)
    For clarity, nothing I say is advice....

  9. #9
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    You raise a good point peat. Our group agreed that a portion of the fund is used for index funds, bonds etc and another portion used for higher risk investments. We haven't yet decided the proportion of each. What would you have thought: 30/70? 50/50? 70/30?
    Last edited by heisenberg; 03-05-2016 at 06:53 PM. Reason: Addition

  10. #10
    Legend peat's Avatar
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    that ratio is all about the risk profile
    given you are a share club, and not a knitting club, we could assume risk is acceptable and maybe even a good dollop but that's what the first meeting should clearly establish
    get everyone to answer the hard questions such as how would they feel if after two years you'd all halved your money. or lost it all. risk isn't all about age, though (all other things being equal) youth can take on more risk than the aged. its also about resilience and determination, income security, fall back positions etc.

    but as I say given its a share club I would suggest at least 30/70, but really I'd be thinking 100% risky because the safe stuff can be done individually.
    For clarity, nothing I say is advice....

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