How to start an Investment Club

Let's be honest, investing with a group of friends is likely to be more fun than going it alone. My freshman year, nine other freshmen and I founded Tiger Trust Investment Group; we still hold weekly meetings to discuss our portfolios and potential investments. The best way for any students who want to invest in the financial markets to get started is by forming an investment club. Such a club allows students, who are likely to be on a limited budget, to have access to a greater pool of collective funds with which to invest. It also minimizes transaction and commission costs and provides access to other Princeton minds for brainstorming.

If you've decided to form an investment club, how should you go about doing so? After selecting your partners, register with the IRS by completing an SS-4 form to receive an Employer Identification Number (EIN). You will need your EIN to set up a brokerage account under the club's name.

I suggest choosing a brokerage firm based on cost. A discount broker such as scottrade.com will offer significantly better commission rates without all the bells and whistles of a full-service broker, and most of your research can be conducted for free using Yahoo Finance in addition to whatever your broker offers. A broker will require that the investment club submit a signed copy of its partnership agreement or charter, setting up rules for the club. I don't recommend trying to write your own; instead, borrow from the sample investment club partnership agreements available for free on the internet.

You should also consider setting up a leadership or responsibility structure to share the administrative work as well as the research. Hold meetings as frequently as possible; we have found that there is a direct correlation between how well we perform and how much time and effort we put into our portfolio decisions. Keep track of all the investment ideas the members bring to the table; evaluating missed opportunities can be very educational so long as you do not dwell on missed profits. Finally, invest in assets you fully understand. Good luck!