What Not To Do In The Investment Club Industry.
2. Continue without a Constitution. The Investment Club Constitution is a written agreement or contract with your members. Most clubs operate under a general partnership agreement, establishing the Club’s purpose, objectives and structure. The constitution should include guidelines stipulating how the Club will be run; dealing with issues like club membership, recruitment and resignation; leadership structure which defines member roles such as president, treasurer, and secretary. The constitution should also establish a code of conduct and must map out the scope of each member’s financial responsibility.
3. Make decisions without developing an Investment strategy. Aside from the written partnership agreement, members must come to a conclusion about an investing strategy and how much time will be dedicated to meetings. Clubs may meet quarterly, monthly or every fortnight depending on the level of involvement they have in making decisions, and how far along they are in the process of Saving and Investment.
4. Think short term. A long-term buy and hold philosophy has proved to be the best approach for the majority of clubs whose goal is to build wealth. For example, in the Ugandan Capital Market, our trading platform is not as fast as those in developed economies, so this buy and hold strategy is pretty much your only course of action. Besides, our market is very illiquid so you would not be able to get in and out of a position so quickly in the first place. Therefore, Investment Clubs must decide on a goal and remain faithful to this even in the long term to see the best results. The Club may diversify its interests in time as long as it does not lose sight of the reason the members came together in the first place.
5. Disregard the benefits of forming a legal entity/ becoming an incorporated company. This status is preferable because: it allows owners to separate and protect their assets; the liabilities of a company cannot be attached to personal liabilities. Moreover, attaching Inc. or LLC. to your business instantly legitimises it and adds credibility to the investors as formidable Industry players. There also is tax flexibility since an LLC is taxed at the same rate as a sole proprietorship.
6. Get lax about maintaining accounting records: this is at the core of the Club, keeping tabs on how much money is coming in or going out, who is entitled to what and whether or not the accounts reflect the wisdom in investment decisions. Smaller Investment Clubs may not be able to afford professional bookkeeping and so will rely on the skill and integrity of the treasurer. However, as soon as outsourcing this function of the Club’s administration can be afforded, it should be enlisted. Bookkeeping software like what Kanzu Banking offers is the most efficient way to track the finances of an Investment Club.
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