There are those who have £20,000 with which to buy stocks and there are those who aspire to have £20,000 (or more) with which to buy stocks. Serious share punting requires a substantial stake, regardless of how quick brokers are to say that they never turn away a small investor with just £1,000 or £2,000 in their wallets.
The advent of younger, well-paid professionals in Irish business the IFSC alone employs more than 4,000 means that there is an increasing interest in stock market investment on a regular basis. If there is not enough capital available an investment club may be the way to get a toe-hold in the market.
Investment clubs on any scale are virtually unknown here, yet in Britain and especially in the US, they are well enough established to even have a national organisation the US National Association of Investment Clubs. The NAIC helps groups to set up their clubs, disperses information about markets and aims to educate Americans about the ins and outs of investing. Older, retired people are particular active club members in both the US and Britain for obvious reasons they have plenty of time on their hands, and very often considerable incomes and assets to play around with.
A whole new leisure industry has even developed around investment clubs, to the point where cruise ship companies in the US happily arrange investment theme trips, complete with prominent Wall Street speakers.
Investment advisers and stockbrokers here say investment clubs are barely in their infancy. One of three stockbroking firms we spoke to, BCP, admitted to having just one client, based in Limerick who has belonged to an investment club for the past two years. Each of the 10 people, staked an initial £2,000 and added another £200 per quarter towards new shares.
Stockbrokers say pooled investments like these make sense given that the minimum buy-and-sell commission rate per transaction can be £40 or £50. That level of fee makes considerably more sense on a £2,000 buy order than on a £200 one. But cutting costs is only one element of the investment club. Most are set up by like-minded friends or work colleagues who enjoy the social aspect of their club. which might meet once or twice a month at a local bar or restaurant to discuss their latest research, share tips or relish their latest successful deal.
The make-up of the Limerick investment club, says BCP's director, Mr Martin Kane, means that everyone has brought with them a certain expertise which can be tapped into when the group is considering which shares often US-based ones to invest in. This particular club has elected a secretary and treasurer but has no legal status.
The tax position of investment clubs is a bit unclear, depending on how official their status. The pooling of funds and a single purchase of a block of shares will certainly keep dealing fees down, but can the individual members rightly claim individual CGT allowances (meagre as they are at just £500)? Who pays the capital gains tax if shares are sold but the profits are used to buy other shares? The club or the individual members? Financial advisers warn about the administrative and legal pitfalls of setting up an investment club and suggest that they act mainly as an information sharing group rather than a mini-unit trust operation with too many members and too few resources to handle the physical business of holding meetings, buying and selling shares, keeping track of share certificates, tax, etc.
Yet going to all the trouble of doing research and meeting regularly to pick each other's brains also seems a bit pointless if you don't also enjoy the fruits of volume purchasing, and lower dealing fees. The investment club also needs to establish a good working relationship with a stockbroker.
