The idea of Investment Clubs is still shrouded in a lot of mystery for many people, with a good number of them wrongly believing that Investment Clubs are bound to fail. Individuals who remain sceptical about the advantages of participating in group Investments fall into two categories.
They are either ignorant about the obvious benefits or have endured a failed experience in the past; as a member of an Investment Club that did not succeed in the long term.We detail some of the mistakes to avoid when it comes to Investment Clubs in the article What Not To Do In The Investment Club Industry. Our discussion here, however, will seek to understand why, despite the benefits, some people are reluctant to take the plunge into group investments and become a member of an Investment Club.
1. The scope Investment Clubs cover is unclear. Some only know Investment Clubs as entryways into the stock market because that has been the most resounding narrative for a while, especially in foreign markets.
They are either ignorant about the obvious benefits or have endured a failed experience in the past; as a member of an Investment Club that did not succeed in the long term. We detail some of the mistakes to avoid when it comes to Investment Clubs in the article What Not To Do In The Investment Club Industry. Our discussion here, however, will seek to understand why, despite the benefits, some people are reluctant to take the plunge into group investments and become a member of an Investment Club.
1. The scope Investment Clubs cover is unclear. Some only know Investment Clubs as entryways into the stock market because that has been the most resounding narrative for a while, especially in foreign markets.
Some definitions even read like, “Investment clubs are simply a group of people who pool their money to make joint investments, usually in stocks or bonds”. In Uganda and most other developing economies, however, Investment Clubs function as a source of personal credit.
As well as a vehicle for joint Investment into things like land and government securities like treasury bills. They also offer funding for Micro, Small and Medium-sized enterprises, often building them from the ground up.
2. People do not know that certain financial institutions can simplify the process of getting started. For example, a few banks in Uganda have gone out of their way to make Investment Clubs accessible to the public. Their customers are then tempted to start their clubs, not because of any vision of their own, but simply because they were with a bank like Equity or DFCU Bank that drove the investment club campaign and streamlined the registration process.
As well as a vehicle for joint Investment into things like land and government securities like treasury bills. They also offer funding for Micro, Small and Medium-sized enterprises, often building them from the ground up.
2. People do not know that certain financial institutions can simplify the process of getting started. For example, a few banks in Uganda have gone out of their way to make Investment Clubs accessible to the public. Their customers are then tempted to start their clubs, not because of any vision of their own, but simply because they were with a bank like Equity or DFCU Bank that drove the investment club campaign and streamlined the registration process.
3. Only a select few people are aware of the capacity of bookkeeping software. Those that aren’t aware remain sceptical about the process of giving their hard-earned money to something without the promise of proper accountability. The Kanzu Banking model is a perfect solution for Investment Clubs because it offers them auditable records, tracks cash flow, and calculates how profits are shared amongst the group. It also has a feature that allows Investment Club members to get loans and make deposits directly using mobile money.
4. Some people believe that an Investment Club cannot be appropriately managed. This bias exists because they underestimate the effectiveness of the Investment Club’s constitution. However, it single-handedly streamlines the processes within the Club, providing recourse on conflict resolution, and penalizes defaulting members. It does this by answering fundamental questions concerning the vision, expectations and leadership structure of the Investment Club in its formative stages. The power of the constitution lies in how much the members of the Club respect it.
5. Investment Clubs are built on trust, and trust can be a difficult thing to foster in contexts like these which deal with money. This distrust manifests as the desire to micromanage members in their roles or even taking on their responsibilities. This mode of operation will create resentment within the group, and fracture relationships because while one person feels overwhelmed, another will feel overlooked. Invest Club members need to be able to count on their partners to be just as invested in the success of the Club as they are.
6. They are unprepared for the risk that comes with being amateur investors. People like this prefer to invest solely on the recommendation of industry experts and do not understand the requirement of club members to get an education for themselves. However, the benefits of an investment club come with a caveat: the returns or losses that the Club realizes entirely depend upon club members and their ability to choose the right investments for their pooled funds. Members have to be able to bear the responsibility of being the final decision-makers.
7. In many Investment Clubs, one cannot leave the Club at will and still get their share of the profit. Many Investment Clubs will allow their members to leave the Club if they feel like they must, but if it is a premature departure, they will not be able to take their share of the profits with them. They will be entitled to their initial contribution towards the Investment, but none of the dividends. Some people might view this as unfair, yet it is enforced to protect the Club.
8. Some Investment clubs do not have a clear vision in place and inevitably fail, which does not inspire any confidence in the model. Every Club needs a strategy on what types of Investment they will get involved in, as well as a contingency plan to ensure the continuity of the Club even when certain investments do not pan out. A clear vision and well thought out strategy will also protect the Club from buying into the ‘latest trends’ in Investment, which could turn out to be bad bets.
9. Investment Clubs do not offer any immediate returns. If one is looking to make a sizable amount of money immediately, Investment Clubs will not be the way to go. It takes a while for a Club to become operational, besides there aren’t many investment options that turn a profit that quickly. More so, returns that the members are entitled to are not made available initially, because reinvestment is always a high priority for any Investment Club, particularly the ones just starting. However, it is important to remember, that investing as an individual will most likely be an even longer wait before one can get sizable and consistent returns on their Investments.
10. Finally, the most substantial opposition to Investment Clubs will come from people that have been victims of fraud in the past. I know of a man living in Kisugu who started a Club and ran it as Chairperson. After the members had saved enough to begin Investing, the treasurer made off with all the pooled money. As Chairperson, none of the members believed that he was not part of the scam and held him responsible for their losses, which he is still paying off. Understandably, he does not have any nice things left to say about Savings and Investment Organizations.
Even with all these reasons, the benefits of being a part of an Investment Club remain undeniable because people working together always accomplish more than they do working apart. To get a better understanding of how Investment Clubs operate, read Investment Clubs: Expectations Vs Reality.
Lack of financial education is the one thing standing between you and the success of your Investment Club. For example, the scam described in reason number ten could have very easily been avoided if the members had known that they could open an account in the Investment Club’s name, or even employed a third party to manage their accounts. In this way, no single individual has direct access to the pooled funds, without due process. With a platform like ours at Kanzu banking, you can be able to track all your savings and loans on the go and have comprehensive reporting on all critical aspects of your Club, protecting you from both internal and external schemers.
Lack of financial education is the one thing standing between you and the success of your Investment Club. For example, the scam described in reason number ten could have very easily been avoided if the members had known that they could open an account in the Investment Club’s name, or even employed a third party to manage their accounts. In this way, no single individual has direct access to the pooled funds, without due process. With a platform like ours at Kanzu banking, you can be able to track all your savings and loans on the go and have comprehensive reporting on all critical aspects of your Club, protecting you from both internal and external schemers.
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The idea of Investment Clubs is still shrouded in a lot of mystery for many people, with a good number of them wrongly believing that Investment Clubs are bound to fail. Individuals who remain sceptical about the advantages of participating in group Investments fall into two categories. They are either ignorant about the obvious benefits […]
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