Is a Mutual Fund Investment Club Right For You?

When I started working in the new accounts department at Morgan Stanley Online, before being promoted to Online Broker, one of the more unusual accounts I helped set up was for an Investment Club. Because the account dealt with money and making trades, it had to be set up very precisely. Therefore only authorized signers were allowed access to information regarding the account. That meant you could be a member of the Park City Investment Club, but never be active in the administrative activities of the account.

Since opening that account it got me thinking about how much a mutual fund is like an investment club. Because mutual funds are a good springboard for learning about other investments, it also got me thinking that using the investment club concept could be a helpful learning tool. If people that lacked confidence in their investment acumen started to look at mutual funds as a kind of investment club, maybe then mutual funds would seem less intimidating.

The first question you would have to ask yourself is: why would I want to join an investment club? The answer would be very instrumental in determining if joining an investment club would be the right choice for you.

Probably, one main reason for joining would be because of friends that have an interest in stocks and the stock market just like you. Another would be because joining an investment club is possibly an interesting way to increase your knowledge about investing. But probably the main reason or a strong motivating factor for joining would be to make some money-to see your investment grow. Just think how excited you’d be to get up each morning to look at the financial section of the newspaper or log on to your computer.

Now let’s take a step back and look at what you’ve really done. You had a desire to learn more about investing, had some extra money you could part with, and had a little faith in some people you knew and their knowledge about investing in stocks. That’s pretty much it. You might have even made a few suggestions about what stocks to buy. If your club was doing really well, you probably wouldn’t interfere much at all and simply enjoy the ride. After a while, you might not even care how well you knew the people that were investing your money-especially if they were doing a really good job.

That’s almost the way mutual funds operate. You let someone else that you’re confident has more expertise in picking stocks invest your money and hopefully enjoy the gains. If at any point your knowledge increases to the point where you think you can do a better job picking stocks or your investment philosophy changes and you’re ready to leave your non-participating investment club and start your own, you’re qualified to start buying your own stocks. Congratulations, you’ve just graduated to the level of experienced investor. Do you lack any confidence now?