Should You Choose an Investment Club Over a Traditional Advisor?
March 23, 2017
•4 min read
Via nw10photography & Travis Goodspeed
Individuals seeking lower costs and risks with higher returns have been combining their assets and knowledge for decades. Investment clubs exist for mutual benefit; beyond the obvious lack of management fees, there are logical and emotional reasons as participants utilize them to increase their wealth and status.
Fees Seriously Hurt Returns
We all know this intuitively, yet a surprising number of us have accepted this drag on our accumulation of wealth. I have run the numbers, and a person who invests a lump sum with traditional advisors or fund managers while in their twenties and withdraws it at retirement will lose — brace yourself — more than a third of their wealth thanks to fees.1 It is why your financial advisor lives in a nicer house and drives a nicer car than most of us.
Investment clubs provide an alternative that empowers retail investors, regardless of whether they have a mountain of knowledge, hoard of cash, the time to conduct research and the confidence required to go it alone. And while discount brokerage commissions are low, splitting them makes investing even cheaper.
Fun and Educational
Traditional clubs improve their members’ understanding of the markets and ensure they didn’t miss out on opportunities identified by their peers. Technology now enables a far more powerful iteration: a record of all your personal decisions. Seeing how your club performs against what would have happened if everyone had listened to you is fun and informative.
More importantly, as far as your wealth is concerned, transparency will enable the voices of those who consistently make good decisions to be taken more seriously by the club, and for you to gather insights in real time from the top performers across the community.
It’s Friends with Real Benefits
Via Sébastien Cevey
Participants in any type of club are members because they value the experiences, relationships and status that those clubs offer. Investment clubs are no different; whether a close-knit family, good friends, or professional associates, taking part is a social activity. Historically, this meant getting together, and now it means exchanging ideas instantly, wherever you are.
While you may be a confident investor, being part of an investment club ensures you don’t miss out on trading ideas from your network. Meanwhile your less experienced peers will value the support and validation that comes with being part of a team. Most of us have friends who claim to be scared of the market, but if invited to participate alongside someone who invests, at the same time and price, most are interested. As an experienced investor I certainly have ideas, but leveraging our combined expertise is likely to yield even better results.
When you all have a vested interest in seeing something succeed, your interests are truly aligned.
Leveraging the Wisdom of the Crowd
In any given social cohort, complementary skillsets and knowledge are present, and combining them yields informational advantages which improve the decision-making process. Some of this relates to our professional expertise, and some is based on complementary perspectives. In one study of over a thousand investment clubs, mixed gender teams generated excess returns of 2% per year relative to those composed of all men or all women.2
Sharing insights and knowledge is more relevant now than ever as we’re all using filters on the vast quantities of information that is thrust upon us each day. Access to the top ideas from investors who are transparently ranked by their decision history is powerful. Validating those with your trusted peers ensures you are not unilaterally copying a stranger (and yes, you should always approach ideas critically, as your money is at stake).
Revitalizing Investment Clubs
With the rise of online trading twenty years ago, interest in the traditional form of investment club waned. Trading on your own got cheaper and until recently these clubs couldn’t adapt to life in a mobile world. Now that Voleo has developed a solution built for the next generation of investors there is a new wave of interest in what was always a great idea.
Ready to increase your wealth and status? Check out Voleo today.
1. Invest at 25 years old, return 7% per annum in a tax deferred account until retirement at age 65. Result is investments are worth 16x the initial balance. If you deduct a 1.5% annual fee based on the opening balance each year, that same investment portfolio would end up worth 9x the initial balance.
2.Harrington, Brooke. 2008. Pop Finance. New Jersey: Princeton University Press p.75.
Thomas Beattie
Thomas Beattie is a former investment banker and returned to Vancouver, Canada in 2014 after spending seven years in London. Thomas has always been a proponent of greater participation in the equity markets, financial education and innovation, and recently became a volunteer with Junior Achievement to teach the next generation how to generate wealth and effectively manage it. He firmly believes that Voleo’s group trading platform will revolutionize the way people invest and create a generation of informed, empowered investors. Thomas is a CFA charterholder and holds a BComm (Finance) from Sauder School of Business at UBC.
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