Intro B&H101 Under the Oak The Mom Chronicles Wall Street History Week in Review Glossary Financial Planning Understand Taxes   "BUYandHOLD" Tax FAQ   The 13 Steps to Investing Foolishly   Carlson on Taxes Past Questions Main Question: What steps do I need to take to start a legal, formal stock club? Albert Crump Answer: Dear Mr. Crump, You've hit upon a terrific approach to investing. Learning with friends or co-workers turns what seems like a daunting task into an easier, enjoyable one. And, the majority of investment clubs have beaten the annual Standard & Poor's 500 Stock Index almost every year -- not bad! After getting together a group of interested investors, these topics should be covered at your first meeting: 1. Decide On Membership Size. The typical club has 15 members; too few members means too few people to share doing research, paperwork, etc. 2. Elect Officers. You'll need leaders to keep the club focused -- a president to lead the meetings, a vice-president to handle the education and research details, a secretary to record the minutes of each meeting and a treasurer to report the buy and sell orders to the club's broker and to maintain all financial records. 3. Form A Legal Partnership. A partnership is a better choice than a corporation because a partnership does not pay Federal income tax. At the end of the year, the club treasurer must give each member a report detailing his or her share of the club's total gains and losses. Members then report this amount on their individual 1040 tax form. 4. Select A Name. You'll need to pick a distinctive club name. 5. Get A Tax ID Number. Once you've decided on a name, the club must get a tax identification number from the IRS. 6. Decide On The Amount To Invest & When To Meet. Most clubs require all members to invest the same dollar amount each month. However, you may wish to allow those with more money to invest a larger dollar amount. To allow this, the paperwork for the club becomes more complicated. Set a specific meeting time and stick to it. You may want to meet at the different member's homes or in an office. Or, you may want to have an Internet-based club. 7. Open A Brokerage Account In The Club's Name. You can do this at BUYandHOLD. Simply click here to open an Account. 8. Establish Club Bylaws. Among the topics to cover when coming up with the rules of your club: What if a member cannot make his or her monthly investment? Can a member who has an emergency tap into his or her share of the club's earnings? What steps need to be taken when someone wants to leaves the club? What if a member lags behind in research assignments? How many members need to be in agreement regarding buying or selling stocks? How will new members be selected? 9. Set Goals. Most clubs incorporate the following approaches to investing: Invest on a regular basis without trying to anticipate the direction of the market. Diversify among several industries. Diversify among 10 to 12 individual stocks. Stay fully invested. Reinvest all dividends and interest. Focus on companies where earnings and sales are growing faster than the overall economy or than the given industry. Pick companies whose products you know, like and understand. Invest new club money at regular intervals, say the 15th of the month. 10. Research Before You Buy. You may want to consult The Value Line Investment Survey, which analyzes over 1,500 stocks (www.valueline.com). Updated weekly, it is available in many larger public libraries. You could also subscribe to my stock selection service available here at BUYandHOLD. I recommend one stock per week. Click here for details. More Info: The Natioinal Association of Investors Corp. (www.better-investing.org), a not-for-profit organization dedicated to investment clubs, has excellent material on how to set up a club, research stocks, and track trades. It also sells specialized software for clubs. The SEC (www.sec.gov/investor/pubs/invclub.htm) has a publication entitled "Investment Clubs & the SEC" which you should take a look at before starting your club. Good luck!

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