David McEwen. Photo / Peter Meecham
Joining a share club is one of the best ways for beginners to get into share investing because decisions are less vulnerable to fear and greed. IRG's David McEwen says.
McEwen runs the share club website www.shareclub.co.nz which provides advice and support to clubs throughout the country.
"Individual investors can
make a snap decision and call their broker on the same day if they are not happy. Share clubs have to wait until their next meeting to vote on it. It stops knee-jerk reactions."
Another positive factor was that people made regular contributions which allowed investments to be drip-fed into the market rather than trying to time an investment.
"Timing the market is very difficult and investors tend to make the mistake of getting in when the market is overheated."
McEwen said most share clubs started with a group of friends or workmates getting together.
"It's okay to start with just six or eight people. The idea then is to get a bank account and trading account set up, decide who is going to manage the money and whose name is on the share certificates."
Contributions were usually around $100 a month a person although some people put in a lot more.
"For most people that's not too hard as you are not talking about their life savings."
McEwen also said it was important to set up a constitution or set of rules before the club began investing.
The rules usually cover how someone can join the club, how you get money out and what happens when someone wants to leave the club permanently.
While the global financial crisis had made investors nervous, McEwen said share clubs could weather tougher times more easily as the money put in was usually not enough to change someone's lifestyle.
Picking investments was done by vote and in some clubs members took turns to present one idea each time they met.
McEwen said most clubs used an online broker to keep costs down.
In recent years there had been a trend towards people in their 30s setting up share clubs.
