Starting an African American investment club can be a great way to learn how to invest with a group of peers who understand the power of working together to create generational wealth.
As a member and Co-Founder of two investment clubs, I have learned some lessons along the way that you can use to create or join a club of your own. Since this is a long article, if you would like me to email you this guide in PDF form, just enter your email below.
With that being said, by reading this article you understand that I am not your lawyer, accountant, or financial coach. Nothing on this site should be considered financial advice. Seek out licensed professionals.
This guide is written in a step by step format and includes books, courses, and documents that can save you time and money, so bookmark this guide for future reference.
What Is An Investment Club?
The SEC defines investment clubs as “generally a group of people who pool their money to invest together. Club members generally study different investments and then make investment decisions together — for example, the group might buy or sell based on a member vote. Club meetings may be educational, and each member may actively help make investment decisions.”
Members of investment clubs can invest in
- Mutual Funds
- Real Estate
- Individuals (by lending them money)
- Small Businesses
- Currencies and Cryptocurrencies
- Anything that generates a return on investment.
Investment clubs tend to operate informally, with dues paid regularly (such as monthly). Some clubs employ committees that recommend investments while others involve each member in the process. Clubs subject any actions to a vote by membership.
Why African American Investment Clubs Are Badly Needed
Investment groups are about more than making fast money. Investment clubs have the power to address some of the most serious economic issues in our communities. These issues include financial literacy, Black net worth, and cooperation within Black communities.
Club Members Gain Financial Literacy
According to Ebony Magazine, there are several reasons why poverty and poor money habits are transferred through generations in the Black Community. They include:
- The absence of healthy money management skills
- Inadequate access to wealth generating channels
- An unbalanced debt to income ratio
- Unrealistic hurdles to self-sufficiency
- Racial inequality
- and a lack of financial literacy
By creating or joining African American Investment Clubs, we can transform many – if not all – of these habits.
Financial literacy is not exclusively about generating more income. It is also about understanding how money works.
A good investment club helps its members understand investment options, debt-to-income ratio’s, credit scoring, and how both businesses and currencies work. Without that level of financial literacy, we will continue to pass down habits and behaviors that perpetuate cycles of poverty.
In our investment club, our members get ‘homework’ at the end of every meeting. This can be as simple as calculating your net worth or finding out your credit score, or as complex as putting together a bitcoin presentation.
We also read and discuss one book per month from a predetermined reading list, with all new members being required to read ‘Rich Dad Poor Dad’ or ‘Think And Grow Rich – A Black Choice’ as their first book.
Club Members Change Their Spending Behaviors
We have all read the statistic that puts Black buying power at $1.2 Trillion. But what we dont look into is what that money is being spent on.
According to the Bureau of Labor Statistics:
For low-income Black households, the top five aggregate expenditure share categories were housing (45.5 percent), total food (23.5 percent), transportation (11.5 percent), healthcare (4.1 percent), and entertainment (3.8 percent). In comparison, the top five aggregate expenditure share categories for high-income Black households were housing (34.2 percent), transportation (17.1 percent), personal insurance and pensions (15.0 percent), total food (12.7 percent), and healthcare (4.8 percent).
Low income Black households did a much worse job of managing their money than higher income households. Because they rented, ate fast food far more frequently, and spent more on entertainment, they lost much of their income unnecessarily.
Being a member of an investment club gives members of our community alternative places to put their disposable income, educates them about the differences between low and high net worth behavior, and adds assets to their personal balance sheets.
Club Members Build Relationships With Others In Their Community
Unity and cooperation are two of the biggest problems we face in the Black community. It seems like every other group is able to use group economics to employ themselves, invest in their community, and build generational wealth.
- We see Vietnamese communities coming together to invest in the nail salon industry
- We see Korean communities coming together to invest in the Black hair industry
- We see Arab communities coming together to invest in corner and liquor stores in Black communities
- We see the Jewish community coming together to invest in the Black entertainment industry
- We see the White community working together to gentrify entire Black communities
In all of the above examples, other ethnic groups cooperate, pool their resources, and invest in ways that create wealth for all their members.
Its time for us to learn how to do the same with our own Black investment groups.
How To Start Your Own African American Investment Club
Starting an investment club is easier than you think. However, there are some important steps that you will need to take to avoid issues later on.
Plan The Basics
What positions do you need to run your club? How will the clubs money be invested? How often will your club meet? How do new members join and old members leave?
Answering these questions ahead of time will prevent misunderstandings between the partners down the line, and will also guide your investment decisions.
So before you start recruiting other members, create a short plan that answers these questions and others. This plan should be no more than a few pages long, and should be shared with other members during their first meeting.
Your plan should outline the name and objectives of your investment club, strategies you will use to invest, roles needed to run the club effectively, and ongoing operations. Here is how to get started with your investment club plan
Create A Name For Your Club
Your club’s name should communicate to the world where you are, who your club is for, and what your club does. It can be named after a person [Marcus Garvey], a place in your community [125th Street], a historical landmark [Black Wall Street], or it can inspire an ideal [Pan-Africanism].
Your name could also reflect the type of member that you want to attract. So if you are in New York and you want to start an investment club for Black women that focuses on real estate, your name could be The 125th Street Black Women Real Estate Investors, LLC
Of course, your name doesn’t have to be that complex. Some well known African American investment clubs have names like The Atlanta Black Hedge Fund Project, The 20/20 Investment Club, and The LA Black Investors Club.
Establish An Objective
Your club objective (also known as a mission statement) lets your members and the world know why you exist.
Below is a sample Investment Club Mission Statement:
Our club is committed to educating its members about investing in the stock market and investing for the long term. Our investment objective is to double our money every five years. To do so, our club must average a 14.90 % compounded annual growth rate. In order for a company to be considered for purchase by the club, a (Name of Club) Investment Club partner must show:
- A completed stock study for the company, as agreed upon by members
- Majority approval by the partners to purchase said stock
Its important to limit your club to no more than 3 objectives. The more objectives you have, the harder it will be to achieve them all.
Outline Your Strategies
Now that you’ve decided on your objective, it’s time to determine how you are going to achieve that objective.
Will your club achieve its objectives by investing in stocks, or by buying franchises? Whatever your strategies are, they should support the objective of the club. It would not make sense to invest in cryptocurrencies if your strategy is long term, stable, low risk growth.
When outlining your strategy, consider factors like:
- Sector Diversification: Your club may set a percentage limit to a sector — say no more than 30 or 40 percent of any sector. If you set 40 percent, and at the next club meeting the club realizes they have more than 40 percent of a sector represented, it is time to buy or sell a stock in order to stick to the operations plan.
- Allocation Planning and Diversification: No one type of investment can represent more than X percent of the portfolio.
- Industry and/or Currency Diversification: No one industry or currency can represent more than X percent of the portfolio.
- Selling Strategies: For instance, a stock cannot be sold less than X Days after purchase or a company after X Years.
- Investment Types: The portfolio should have no more than X percent large-cap stocks or X percent single family homes.
The list can go on and on. It’s up to your club to decide what strategies best support your objectives.
Running an African American investment club effectively means dividing up duties between people that you trust. Typically, investment clubs divide their duties between four Officers: a President, Vice President, a Secretary, and a Treasurer. You are free to call these positions what you want, but here is a short description of each position:
The President of your investment club can be you or another member appointed by the group. She presides over all meetings, ensures resolutions are carried out, appoints members to committees, and coordinates the research activities of the Partnership.
The Vice President
Vice Presidents perform all the duties of a President in the event that she cant make a meeting or is incapacitated for whatever reason. Members in this position also usually keep a file of all stock selection reports made by the partners, coordinates the education program, balances the portfolio, and performs other predefined tasks.
Secretaries keep meeting minutes, send out meeting reminders, keep attendance records, and makes the agenda for meetings. If you are a corporation, these minutes are required to be kept by law.
As you probably know, Treasurers handle the money and maintain the books.Treasurers make deposits and reconcile bank accounts, prepare and file federal and state tax returns and distribute the appropriate copy of such forms to each member.
They also prepare reports that let the rest of the club know how much the portfolio has increased or decreased in the form of valuation statements.
Depending on your group, you may decide to create more positions. Some groups have research assistants, analysts, auditors, and other positions as required.
Find The Right People
Now that you know how many people you need to run your group, its time to fill in those positions and recruit other investors. Aim for between 7 and 20 people.
Its important to remember that not everyone will be interested in joining your group, so cast a wide net at first.
Invite your friends, family, and tell them to invite their circles to your first meeting (more on holding your initial meeting later). Use Facebook and Meetup.com to cast an even wider net. Just make sure to clarify who the group is for and promote the meeting for a few weeks to increase your odds of a good turnout.
I have had meetings where almost 200 people would RSVP and only 20 would show up. Out of that 20, 13 joined and about 8 became long term members.
Once you have seats in chairs, be clear about the group and what your objectives are. Once attendees are all on the same page, give those who are interested an opportunity to leave or decline membership.
Sidenote: Even if members are not interested immediately, they may be in the future. Ask for their permission to keep in touch, and add their email to your autoresponder. Send them an email once a month to show them what they are missing out on. They might come around later!
For those who are interested, create an application process that thoroughly assesses their financial commitment and goals. Find out what they are most interested in learning about, their risk tolerance, and their level of knowledge and experience.
Hold Your First Meeting
You never get a second chance to make a first impression, so make sure you come prepared to blow your future partners away!
Bring extra pens, printouts, applications, copies of books, and anything else you think you need to give to members or use as props. Think about any questions potential members may ask and have answers prepared ahead of time.
Your presentation can be a simple question and answer session, or it can be a full blown multi-media experience.
For my first meeting, I created a pitch deck with professional slides and printed out membership packages with our group name and logo printed on the front of the folder.
During your first meeting, you are introducing yourself, your concept, and the basics of your group. In future meetings, you will decide on an operations plan, cover your Bylaws and Operations plan, finalize a description of duties, elect officers, and add those names to your Articles of Incorporation.
It could take four or more meetings to get everything sorted out, so take your time.
Decide On An Operations Plan
Your Operations Plan should clarify how your club will run its “business” on a regular basis. It should include information like how often officers are elected, voting procedures, how often your club will meet, locations, activities, and how often other things are done.
An operations plan doesn’t have to be elaborate, but it should answer questions in a way that leaves every member clear about the who, what, when, where, and how of your club’s operations.
If you would like to see the operations plan I used to run my group, enter your email below to get a PDF copy.
Establish A Limited Liability Company
This is an optional but important step. In fact, I do not recommend starting an African American investment club unless you are formally organized and registered with your State.
That’s because depending on your investing strategy, having a Limited Liability Company will give you access to business credit that can be used to leverage future investments. You will also be able to open business bank accounts or brokerage accounts that are not tied to any single individual. Finally, having a structure that protects individual members from liability can prevent problems later on.
You will need Articles of Incorporation and a Partnership Agreement. You will also need to apply for an Employer Identification Number (EIN) and file a “Certificate of Conducting Business as Partners” form. All this can be done quickly and easily with Legal Zoom. Click here to check out their prices and set up your LLC.
Open A Bank Account
In order to open a business account or a group brokerage account, you will likely need your Articles of Incorporation. These articles will tell the bank that you are a legitimate entity, and will list those who have permission to do business on behalf of the group.
There are no shortages of options out there, but my group banks Black. One United is a Black owned bank that has some good options for business accounts. You can check them out by clicking here.
Banking Black is an important part of our club’s investing philosophy, and should be part of yours too!
Running Your Investment Club For The Long Term
Once everything is sorted out and you have your first core members, its important for you to establish a rhythm for your meetings.
For the first few months, meet at the same location at the same time. If you decide to reserve a space, try to do so for as far into the future as possible.
Privacy is important – members will be discussing their personal financial goals and positions, so choose a location where you can speak freely with other members.
Good Meeting Locations
- Reserved Library Rooms (best option)
- Chambers of Commerce (usually have meeting rooms)
- University Campuses
- Community Centers
Less Than Ideal Meeting Locations
- Starbucks (noisy, no privacy, and limited seating)
- Member homes
- Hotel lobbies
- Lounges and bars*
*For motivation weeks these locations can work well. More on ‘Motivation and Education’ Weeks below.
Never cancel a meeting unless it is absolutely necessary or if there is a clear and present danger to the safety of members if they try to attend (like a snowstorm).
I was so disciplined about our meetings that even if we didn’t physically meet I would invite members to Skype sessions. We would also be strict about starting and finishing on time, while giving members permission to stay behind after the meeting concluded if they wanted to keep building and socializing.
Maintaining this level of discipline will give your members the impression that they can trust and rely on you.
The structure of your meetings are important as well.
Our investment club met in person twice per month. The first meeting of the month was a 2 hour long ‘Admin and Execution’ meeting. The second meeting of the month was for ‘Motivation and Education’, and lasted 2.5 hours.
Here is the how and why behind our meeting structures.
‘Admin and Execution’ Week
Staying on top of your paperwork is an important part of running any business or group. Not to mention that it is required by law.
During this meeting we handled all the administrative issues we needed to take care of, bought or sold our investments for that month, and resolved personnel issues.
‘Motivation and Education’ Week
Keeping an African American investment club interesting is just as important as making a profit. If meetings are the same old same old, members will stop coming, withdraw their balances, and shrink your pool of funds.
To keep things interesting, here are a few ideas that you can steal from us:
Invite Keynote Speakers
Each month, we invited a Keynote Speaker that was knowledgeable in an area of investing that we were interested in. The types of people we invited to our meetings were:
- Business Owners
- Local real estate investors
- Bankers And Stock Brokers
- Motivational Speakers
- College and University Staff Members
- Government officials that can explain regulations
These individuals would do Q and A sessions, describe what they do, and talk about the difference between successes and failures that they have seen. I would always have a list of relevant questions ready to go in case the conversation slowed down.
Dont be afraid to reach out to high profile individuals: most of the speakers I reached out to were not only happy to share their knowledge, but would do so for free! I would sweeten the deal with a free meal or open bar tab and that was usually enough to get them to show.
Have Social Functions
If we didn’t have a keynote speaker on the books, we would do a movie night or happy hour. We would watch documentaries on Black Wall Street and African American business leaders followed by a discussion related to our investment strategy. We would also change our locations up and do a local restaurant or lounge.
Don’t underestimate the importance of these social functions. Members will learn more about each other, grow to like one another, and ultimately will develop deeper levels of trust with one another.
Not to mention that these functions give members something exiting to look forward to!
Lastly, bringing in new members is critical to the success of your club. Old members will leave and will have to be replaced, new members will bring fresh perspectives, and existing members will enjoy having some new energy in the circle every now and then.
Every 4 months, my group would do a recruiting drive and open house for potential new members. This gave us the ability to onboard new club members all at the same time. For those who were interested and missed the last open house, we would add them to our waiting list and email autoresponder.
More Resources To Help You Start And Grow
IRS Publication 550 chapter on Investment Clubs
SEC’s Investment Club Investor Publication
Resources For Starting A Club
Resources For Learning To Invest In Equities and Stocks
I have taken dozens of courses on stock investing, but the 4 below are the best ones I have seen so far.
I suggest buying these courses and having your entire group go through them together.
Resources For Learning To Invest In Real Estate
I created a list of Black audiobooks and free ebooks from Black real estate investors. All the titles are free, so you have no excuse not to grab them.
Click here for the free real estate investing ebooks.
Learning To Invest In Forex
This is an excellent course from a successful Black Forex trader. Even if you have no idea what Forex is, this Brother walks you through everything you need to know with high quality videos.
Don’t let his accent throw you off – the Brother is in the United Kingdom!
If you have followed this guide step by step, you should have a well organized investment club with members who are excited to attend every meeting.
While this guide gives you the structure for starting and running your own African American investment club, how you invest is up to you.
If you are interested in starting, running, or being a part of an investment club, drop your email in the box below. I will also send you samples of our Bylaws and Operating Agreement, along with a checklist that you can follow to get started.