Investment Clubs
May 24, 2005 1:00 PM Subscribe
I'm starting an investment club with my friends and have a few questions.
There are 8 of us and we are going to be investing $1000 to start (total, not individually). We're doing this mostly for fun with the idea that if we make a little money, it can go toward funding a vacation for us some day.
Here are my questions:
What kind of legal entity should I set up and do we need to get a Federal Tax ID?
How do taxes work for investment clubs? (I know this is a very general question with a myriad of possible approaches. I'm just looking for a simple explanation.)
Since we're all looking at this as a short term investment (about 2 - 3 years), we want to be real risky with it in the hopes that we get a large payoff. What are some good high-risk sectors that we should be looking into?
What are some good online brokers for investment clubs? I'm leaning toward eTrade. Ameritrade is out because they have a minimum starting balance of $2000.
I've found answers to most of these questions online, but I was hoping that someone here could give me a quick and dirty summary of the issues involved and some common pitfalls to avoid.
There are 8 of us and we are going to be investing $1000 to start (total, not individually). We're doing this mostly for fun with the idea that if we make a little money, it can go toward funding a vacation for us some day.
Here are my questions:
What kind of legal entity should I set up and do we need to get a Federal Tax ID?
How do taxes work for investment clubs? (I know this is a very general question with a myriad of possible approaches. I'm just looking for a simple explanation.)
Since we're all looking at this as a short term investment (about 2 - 3 years), we want to be real risky with it in the hopes that we get a large payoff. What are some good high-risk sectors that we should be looking into?
What are some good online brokers for investment clubs? I'm leaning toward eTrade. Ameritrade is out because they have a minimum starting balance of $2000.
I've found answers to most of these questions online, but I was hoping that someone here could give me a quick and dirty summary of the issues involved and some common pitfalls to avoid.
Response by poster: I've read about investment clubs on the Motley Fool and NAIC sites, although I just now found the page on NAIC's site that answers most of these questions.
I'd still love to hear from anyone else who has experience with this stuff.
posted by fletchmuy at 1:46 PM on May 24, 2005
I'd still love to hear from anyone else who has experience with this stuff.
posted by fletchmuy at 1:46 PM on May 24, 2005
Since we're all looking at this as a short term investment (about 2 - 3 years), we want to be real risky with it in the hopes that we get a large payoff. What are some good high-risk sectors that we should be looking into?
Yikes. Go to Vegas, see some shows, and get it out of your system.
That said, if you REALLY want risk, get a margin account with your broker: you can make significantly more money with the little you've got to work with ...but keep in mind that you've got the potential to lose more than you put in.
Also risky, Penny Stocks, look for something called the pink sheets, which lists OTC stocks. They're volatile as all heck.
No respectable advisor would recommend either.
posted by leotrotsky at 3:06 PM on May 24, 2005
Yikes. Go to Vegas, see some shows, and get it out of your system.
That said, if you REALLY want risk, get a margin account with your broker: you can make significantly more money with the little you've got to work with ...but keep in mind that you've got the potential to lose more than you put in.
Also risky, Penny Stocks, look for something called the pink sheets, which lists OTC stocks. They're volatile as all heck.
No respectable advisor would recommend either.
posted by leotrotsky at 3:06 PM on May 24, 2005
A margin account won't buy you much when you're starting with $1000.
One way to get some decent leverage with that little money is to get into options trading. Buy some GOOG Sept. $200 puts for instance, to have a very good chance of either doubling your money or losing most of it in just a month or two. (That's not the options contract I would recommend, just an example of one that's very risky.)
With $1000, there aren't many other viable high-risk strategies. Maybe buy like 100 shares each of a couple dozen penny stocks and hope that one hits it big. You may or may not get better odds than you can find in Vegas.
posted by sfenders at 4:56 PM on May 24, 2005
One way to get some decent leverage with that little money is to get into options trading. Buy some GOOG Sept. $200 puts for instance, to have a very good chance of either doubling your money or losing most of it in just a month or two. (That's not the options contract I would recommend, just an example of one that's very risky.)
With $1000, there aren't many other viable high-risk strategies. Maybe buy like 100 shares each of a couple dozen penny stocks and hope that one hits it big. You may or may not get better odds than you can find in Vegas.
posted by sfenders at 4:56 PM on May 24, 2005
$1000 is much better spent on investing books than starting up an investing club.
also, what everyone else has said.
With FOREX, you can lose your $1000 in minutes!
posted by Kwantsar at 7:00 PM on May 24, 2005
also, what everyone else has said.
With FOREX, you can lose your $1000 in minutes!
posted by Kwantsar at 7:00 PM on May 24, 2005
A margin account won't buy you much when you're starting with $1000.
Dunno whether it's NASD or house rules, but no broker will open a margin account with a cash balance under $5,000.
posted by Kwantsar at 7:53 PM on May 24, 2005
Dunno whether it's NASD or house rules, but no broker will open a margin account with a cash balance under $5,000.
posted by Kwantsar at 7:53 PM on May 24, 2005
In this market, you're going to have to be more lucky than anything else to turn $1000 into an amount that'll get 8 people a decent a vacation in 2-3 years. It's pretty stagnant out there.
Penny stocks and options are definitely ways to get much higher returns, but at that point it's not really "investing" to my mind. As leotrotsky pointed out, you might as well go to Vegas and have more fun gambling.
posted by Big Fat Tycoon at 8:08 AM on May 25, 2005
Penny stocks and options are definitely ways to get much higher returns, but at that point it's not really "investing" to my mind. As leotrotsky pointed out, you might as well go to Vegas and have more fun gambling.
posted by Big Fat Tycoon at 8:08 AM on May 25, 2005
Spent several years in a NAIC club and would highly recommend buying into their approach although it is almost opposite to your declared goals. They bascially buy/hold growth and shoot for 10-15%/yr which would put you at ~$1500 after three years. If you do decide to go with NAIC, avoid their club management software like the plague (slow, buggy, poorly-written/-designed) and create spreadsheet versions of their forms so you're not dropping cash every few months on their products.
As for penny stocks, you have better odds with a blackjack dealer and I'd honestly recommend a casino unless you have inside information.
posted by Fezboy! at 8:37 AM on May 25, 2005
As for penny stocks, you have better odds with a blackjack dealer and I'd honestly recommend a casino unless you have inside information.
posted by Fezboy! at 8:37 AM on May 25, 2005
Response by poster: I guess we're taking the $1000 and heading to Vegas. Thanks for the help everyone.
posted by fletchmuy at 8:56 PM on May 25, 2005
posted by fletchmuy at 8:56 PM on May 25, 2005
This thread is closed to new comments.
posted by matildaben at 1:18 PM on May 24, 2005