Starting an investment club

How two groups of professional women have used an investment club to build their own wealth

If you have an existing savings club with a group of friends that you want to take to a new level, creating an investment club to build wealth is a great strategy. This week we interview two very different investment clubs to learn more about how to make your investment club a success.

The Phezulu Investment Club is a group of seven young, professional women who got together three years ago. “We wanted to create and be in charge of our own individual wealth as well as participate in investment opportunities that we would otherwise not be able to access on our own,” says club member Palesa Moloko who explains that the club has been able to harness the buying power of the group. If they were investing R1000 a month on their own they would only have R12 000 a year, but by combining their contributions they can make sizeable investments.

“Another reason for creating the club was that in belonging to the group each person is accountable to the other as the timeous collection of the fees is the driver behind the purchase of our investments. There isn’t any room for members to be lax,” says club member Sibulele Ndandani.

The club started with an initial contribution of R1000 which was a commitment fee to the club and the membership fees were R500 per month. As their earnings have increased and their confidence in their investment strategies, the monthly contributions have escalated to R1 000 and will be increased by R500 annually going forward.

Reyakopele Trading epitomizes the next stage in an investment club. The investment company was formed in 2007 by nine mature women who wanted to take their existing stockvel arrangement to a new level.  “Our vision for creating the club was to create wealth for shareholders and our stakeholder,” says Reyakopele Trading’s chief operating officer Elsa Ramathibela.

Reyakopele Trading has been built into a significant investment fund and the members no longer need to contribute as the company is now self-financing.

Selecting investments

When it comes to making investment choices, having a financial adviser as a sounding board is a good option. “Our adviser Craig Gradidge of Gradidge-Mahura Investments has been an amazing mentor to the club and he has been involved since the club’s inception,” says Moloko.  In addition, most of the club’s members are financially savvy in their own right so they share their thoughts over specific shares and then bring quantifiable facts to the table to back up the “buy” recommendation.

The group initially invested in public BEE deals. As investment club, groups are able to take advantage of public BEE deals both as a group and as individuals in their personal capacity.

Now that the group has created a base investment portfolio they are looking at investing in other asset classes like property. Moloko says buying a property in a group helps spread the risk if the tenant defaults for example. Currently the investments are held as a joint account, however if the club purchases a property, they would look at forming a company.

Ramathibela says Reyakopele Trading started by defining their investment philosophy. “This was done by assessing individual risk profile of shareholders and the company and how we can bridge the gap”. Their adviser, Gradidge, says before starting to invest, it is important that the group share the same level of risk tolerance. If a shareholder has a higher or lower risk tolerance their expectations need to be managed so that they buy into the investment decisions of the group as a whole.

Reyakopele Trading set out three key investment criteria: Capital protection through the investment in empowerment shares and other offshore equities; capital growth through the acquisition of properties and finally income generation through businesses that could provide a revenue stream.

“When a shareholder identifies an opportunity, it is tabled in the meeting and we start by assessing if there’s an appetite for shareholders. If the appetite is there then a working committee is formed to pursue it,” says Ramathibela.

This is another advantage of an investment club; you are able to spread the research between you. Each member can be tasked with looking into an investment and bringing the research to the next meeting. If you are all professionals, you may have access to different sectors in the economy bringing all your group knowledge together to make sound investment decisions.

What ensures success?

Moloko and Ndandani agree that the investment club must be incorporated with people who have similar financial goals and who will be in a position to make both the financial and time contributions.  “What has definitely been helpful is that Phezulu is represented by dynamic professional women who have an understanding of the world of business, ethics and commitment and we have seen this translate in the manner in which we manage both the club and ourselves”.

Gradidge says the clubs that are successful are those where the members are in similar stages of their lives. You would have a group of young male professionals or a group of middle-aged women with children, or an investment club of retired men.

Ramathibela says an investment company is like a child, it needs to be nourished in all stages from birth to development to growth to maturity. You need to have a clear idea of what the club is aiming to achieve and set these out in your strategy which is contained in your investment club or company’s constitution.

Total commitment

Starting an investment club has its challenges, the main one is having everyone equally committed. There is no point in starting a club unless you know the people involved will be 100% dedicated.

There will be issues like non-payment by members, lack of attendance at meetings or lack of participation from the members. The administration of opening of accounts is also difficult especially getting everyone together at the same time and getting the FICA documents together.

Ndandani says they have managed these issues by reaffirming their commitment to the club based on their original foundation principles that no one person is here for a free ride and they must all make a meaningful contribution to the growth and success of the club.

Ramathibela says the challenge they have is that being a group of 9 you do not always agree on everything and you find yourselves deliberating on one issue for long.

Writing up a constitution

Whether you are setting up a stokvel, savings club or investment club your first action is to put a proper constitution in place. This will set clear objectives on what you aim to achieve and is useful when resolving disputes says X from FNB.

What to include:

  • The name of the club
  • Membership: The full names of all members
  • The number of members: You can include a limit to how many members your club will have as well as stipulate any conditions on membership. For example a new member may need to get full approval of all existing members. Perhaps it is a women’s or men’s only investment club.
  • The objectives: here you need to decide what type of club you want to be. Are you a savings club that you use to save up for school fees and end of year commitments; are you forming a savings club to go on holiday; do you want to start a long-term investment?
  • Type of investments: Based on your objectives what savings or investment vehicles will you include?
  • The terms and conditions: Will the group allow the member to use the account as security to obtain a loan? What happens if a member cannot meet a monthly contribution or wants to cash in their investment? It is important to note that the bank will not accept a stokvel account as security against a loan even if provided for in the terms and conditions. However the members can borrow from the account.
  • Entrance fee: If you decide to have an entrance fee, stipulate how much that will be. Some clubs stipulate that this is used as a deposit and if a member wants to leave they forfeit the entrance fee.
  • Subscriptions: This will include the amount payable by each member as well as the date
  • The general meeting dates: Having regular meeting dates such as the first Saturday of the month is very important. Members have to commit to this.

If the group does not have a constitution then FNB will provide a document including the information needed for the group to complete.

This article first appeared in City Press

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