Guide to Share Clubs

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People from all walks of life join share or investment clubs, discovering it’s a sociable hobby and a way of earning extra money. Work colleagues or friends pool their time and money to play the stock market on a regular basis, normally monthly. It’s a fast-growing phenomenon – there are 12,000 investment clubs in Britain with an estimated 100,000 members meeting regularly to try to pick winning shares.

Members contribute an average of £25 to £30 a month.

Under Inland Revenue rules and club guidelines, you shouldn't have more than 20 members, or your tax position and administration will get complicated.

As with most clubs, it's crucial that you pick the right people to join. Not only must they be willing to devote time and money, but it helps if everyone has roughly the same investment objectives. Mixing high-risk takers with conservative investors is likely to store up trouble in the future.

Most people join a share club when it is first set up. Joining halfway through may be problematic when it comes to who owns what.

Most members pay an initial lump sum - somewhere in the region of £100 each - to get the ball rolling, then contribute a regular monthly amount after that. A direct debit or standing order with your bank will make life easier.

It might not seem important, but you'll need to come up with a name for your share club - you will need this when you register with a bank and a stockbroker.

A venue needs to be agreed, normally members' homes. Other clubs prefer to meet in a pub or restaurant.

Unfortunately, you cannot avoid bureaucracy - rules and a constitution need to be drawn up, covering issues such as what to do when a member leaves and whether to audit the accounts.

Proshare, the organisation which promotes share ownership, has a manual costing £25 showing you how to get a club started and then to run it. It also publishes a model constitution and draft rules. Some stockbrokers also provide examples of rules and constitutions.

Members should designate a secretary, chairman and treasurer. The treasurer's role is vital, as the club must keep accurate and up-to-date records of how much its shares are worth and how much money there is to invest.

Members also need to divide themselves up to research particular companies and sectors. Sectors could include banks, retailers, pharmaceuticals and oil and gas.

In many ways, the same rules apply to share clubs as to private investors. When investing in shares, be prepared to tie up your money for at least three to five years.

Before you start trading, build up a fund of at least £500 or the cost of buying and selling shares becomes too high. Typically, you should have enough money in the kitty to buy at least five different stocks before you start trading.

Share clubs give you the scope to be a bit more adventurous in your stock selections. Barclays Stockbrokers, whose services are used by 6,000 share clubs, finds members treat clubs as educational, so they don't mind making a few mistakes.

The ideal portfolio will be made up of about 30 stocks, but this might be unrealistic for a share club. More than ten stocks is desirable but the closer you get to 30 the better the risks will be spread.

Online trading is the cheapest way to buy and sell shares. Proshare's website has a section on stockbrokers who will open accounts for investment clubs. Execution-only brokers offer clubs a flat fee - normally about £12.50 per trade on average.

Proshare investment clubs has been taken over by Digital Look, which is mainly internet run.http://www.proshareclubs.co.uk has waived the annual fee which Proshare charged clubs.

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