Investment clubs have become very popular in the UK, with more than 5,000 springing up across the country since the 1990s. The rise in popularity was fuelled by people realising that investing can be turned into fun by teaming up with friends or colleagues – ideal for those new to investing in shares.

Ian Benning, product development manager at The Share Centre, agrees: ‘The benefits of investing with an investment club include the fact that you get a spread of members’ knowledge. Rather than going it alone and not knowing where to start, you have, say, ten members in a club pooling their knowledge, ideas and resources.’

Shared interests
He adds: ‘Investors really need to be able to trust the other members of their club, which makes it very rare for strangers to come together – investment clubs are usually made up of work colleagues or friends.’

The knowledge of these friends and colleagues will all come in handy; for example, one member’s profession may be in IT and so they may know a lot about technology companies.

As Benning points out: ‘Clubs should make use of their members’ expertise. Past jobs, current interests and business experience can all play a part; even regular visits to the High Street can help identify stores that look to be doing well.’

Ready, steady, invest!
Once you have enough members signed up to the club, you will need to find an appropriate meeting point – this can be the local pub or members’ homes. On a recent visit to Hampshire, Benning caught up with one club that combines its monthly meeting with some fine dining: ‘We find that the social side of things plays a big part; this particular club has a monthly meal in a restaurant where they discuss the club’s portfolio, but they also meet up to have a good time and enjoy each other’s company.

‘Another club was formed by a group of ladies who previously met up socially. The investment club was born when one of their husbands suggested that the ladies do something productive when they meet.’

The chairman, secretary and treasurer are responsible for the day-to-day running of the club, but that doesn’t render the other members useless. Many long-standing clubs encourage members to take ‘ownership’ of particular shares – this basically means that once a share is bought, two members are assigned to be its owners and they are responsible for monitoring progress, gathering news and providing the club with a performance overview.

When to get out
However, it is important that members don’t get too attached. ‘No investor should fall in love with a share,’ says Benning. ‘It is crucial to have an exit strategy and stop loss limits are there to stop investors losing too much. With the markets as they are currently, investors need to monitor their accounts.’

According to Benning, knowing when to sell can be the most difficult aspect of investing, as a profit is only a profit once a share is sold: ‘All clubs should
have a stop loss strategy to react to the changing market. A month is
a long time on the market and with clubs usually meeting just every four weeks, having stop losses set is vital.’

Benning adds: ‘Clubs can also use the limit orders to monitor what level of profit they want from a share before selling. As an example, a club could set sale limits of say 25 per cent profit, and once it reaches that target the share is automatically sold.

‘Everyone has different ideas about their investment strategy – some want to be risky, whilst others prefer to be cautious. What one member is willing to do with their investment may be totally different to another so it is important for members to be flexible.’

Just a click away
As well as having all of these measures in place to limit losses, it is also important for each member to have access to advice and, more importantly, the portfolio. Advances in technology  have been particularly beneficial to investment clubs, simply because they can now access their portfolio online, as well as research companies, gather news, and buy and sell shares – though this can only be done by certain members of the club.

Many stockbrokers that have an online offering, such as The Share Centre, also provide investors with the option to set up a practice account which gives those new to investing on the stock market a chance to play around without risking actual money.

Benning believes that this is also a good idea to test out some of the more adventurous ideas that clubs might come up with. ‘You could use this account to work out the best way of investing in small caps, which are riskier and more volatile than FTSE 100 companies. You could then apply this experience to your actual account.’

But nothing beats being able to pick up the phone and speak to an adviser. As Benning points out: ‘More and more advisory firms have gone online, almost to the extent that being able to talk to a human being is becoming unheard of. However, all registered Share Centre customers can speak to our advice team and get their opinion on the market and the shares in their account.’