Despite the gains made in civil rights over the past few decades, the latest Bureau of Labor Statistics reveals that Black America is currently experiencing double the unemployment rate of the nation’s overall jobless rate – a rate that hasn’t changed since Martin Luther King JR was still giving speeches.
And much to our discredit today, Black wealth here in America has melted from 25% of what white wealth was in the 1960s to only 6% of what white wealth is today. It is for these reasons that solutions like investment clubs should be leveraged and promoted as a means of Black economic empowerment.
What is an Investment Club?
An investment group or investment club is a group of family members, friends, co-workers, or like-minded individuals who pool a regularly invested dollar amount into a common banking account for the purpose of purchasing stocks, bonds, mutual funds, businesses, property, or other assets. There is no limit to the number of members your group can have, but as the African saying goes; “many hands make light work”. The more capital that is pooled, the bigger the ventures that your group is able to involve itself in.
According to The New Black Magazine; “Investment clubs and groups promoting good money habits among young African-Americans are spreading across the country, global financial crisis notwithstanding. From grade schools to Facebook groups to seminars by hip-hop stars, the message is clear: it’s time for young blacks to get smart about the green, especially in such an uncertain financial climate.”
The National Association of Investors Corp. (NAIC), established in 1951, has set forth guidelines for running successful investment clubs. It urges members to:
- Invest money regularly, regardless of market conditions
- Reinvest all dividends and capital gains
- Buy stock in companies that are growing faster than most of their peers
- Diversify investments, not putting all invested funds into one basket
The Benefits of Investment Clubs
The benefits of belonging to a good investment group can mean extra income and financial literacy for the individual, and lower unemployment, and higher investment in Black entrepreneurs and businesses for our community as a whole. Members of investment groups learn and practice a host of business and investor- related subjects, including:
- Personal Finances Skills/Techniques
- How to Invest and Understand the Stock Market
- The Importance of Maintaining a Diversified Investment Portfolio
- Prepare and Understand Basic Financial Statements
- Prepare and Understand Basic Tax Returns
- Leadership Skills
- Public Speaking Skills/Selling Techniques
- Learn how to operate a corporation by running their own business
Investment clubs work. The longest-running investment club in the country, according to the National Association of Investment Clubs (NAIC), is the Hamilton Trust of Boston, which is now 120 years old. According to Better Investing’s 2005 membership survey, the average investment club has a portfolio worth $97,441, and members join for reasons ranging from increasing their financial literacy to complete financial sovereignty.
If you think an investment club is too complicated, consider Mr. Williams. Damon Williams joined a stock investment club to eventually put his children through college. Unlike many members of investment clubs, Damon is just 11 years old.
After six years of investing, the ambitious Chicago seventh-grader has a portfolio of more than 30 companies worth more than $18,000 — $4,000 of that profit. He is one of the estimated thousands of children in investment clubs nationwide who sacrifice an occasional Saturday to sharpen their financial strategies.
“I want to pay my own way through college, buy real estate and see my children graduate from college also,” Damon said.
At the rate he’s going, he just might do it. (From African American Empowerment)
CNN also reports that “At the Oregon State Penitentiary, groups of inmates have studied investing in a financial-responsibility class. Some convicts, according to a spokesman, are already members of the NAIC. The interest in investing makes sense, he says, because “most of the people are here due to financial issues of some form.” Hmmm, maybe he has a point. Just this past January, five convicts in the East Jersey State Prison finished third in a statewide stockpicking contest.”
If an eleven year old and an inmate can become successful members of an investment club, so can you.
Investment Groups from a Pan-African Perspective
Lets say that you, a few family members, and some other men and women from the community decide to form an investment club. You start out with a very small monthly investment and you use that money to buy a few stocks and a T-Shirt business. After 6 months, the group is producing enough income to purchase a tax lien on a small multi-family building with a large backyard. Your group turns the backyard into a small community garden, and renovates the building to rent out to members of your group. These group members pay a reduced rent, and that rent money goes back into the group until the building and land can be purchased outright.
With no mortgage, your group owns the property free and clear, and the rent money from that project (along with capital gains from stock purchases and profits from the T-Shirt line) can now be used to acquire more buildings and land. You remember reading about vertical and horizontal integration, and so your group launches a building renovation company, and urban gardening company, and informational products and income producing websites to teach others how to do the same.
You continue to acquire larger and larger properties using the same strategies that your group had learned from its first apartment building, until you are producing more than enough income, food, and shelter for all of the group members and their families.
Members of the group are now free to leave their jobs, declare their economic sovereignty, and meet the needs of the community at large. Non-profits can be built to help our people in time of need, group members have the time freedom to volunteer their efforts to nation building, nutrient – dense food is being produced that can feed the community, and the group is no longer forced to beg white-owned banks for loans, nor are they forced to beg white business owners for jobs. The group is also able to become Angel Investors for other Black entrepreneurs who may not have the capital or credit to receive loans from big banks.
That is how we go from complete dependency to doing for ourselves collectively.
If this seems unrealistic, consider the group we mentioned above; the Grass Roots Investment Group. The group was profiled by Black Enterprise in July 2002. At the time, the group consisted of only a handful of energetic, innovative investors who were relying on their individual expertise to improve their profits. Phillipe Tatem, founder of GRIG told the magazine that “we have people who are in law school, who are engineers, some who work for Internet companies, who own their own businesses, as well as some in banking and sales, and we lean on those individuals”. Since 2000, the group has turned a collective investment of $118,000 into a portfolio worth more than $1.3 million that includes equities, real estate, and business operations such as a car wash and detailing franchise.
THAT IS POWERNOMICS IN ACTION!
Organizing an Investment Club
There arent many African-American investment clubs around, so if you cant find a group near you, consider organizing one yourself. Investment clubs can be very simple or very complicated depending on your objectives, so a qualified attorney or business counsellor is always recommended. If you dont have access to those individuals, you will need to teach yourself using books and resources at your disposal (library, internet, etc). Here are some bullet-points to consider as you organize:
- Determining The Strategic Focus of the Organization
- Deciding Upon A Meaningful Name
- Mission Statement
- Vision Statement
- Organizational Goals & Objectives
- Recruitment of Members
- Membership Training
- Election of Officers
- Tenure of Officers
- Roles & Responsibilities
- Establishing A Membership Term Agreement, Confidentiality Agreements, and Partnership Agreements
LEGAL STRUCTURE AND ACTIVITIES
- Setting-up Bylaws of the Organization
- Determining Legal Status (DBA – Corporation, Partnership, LLC)
- Setting-up Legal Status
- Selection of an Attorney
- Obtaining The Necessary Legal Documents
- Registration A Fictitious Name
BECOMING A LEGITIMATE INVESTMENT ORGANIZATION
- Determining Investments Strategies
- Setting Investment Performance Standards
- Setting-up Brokerage Accounts
- Deciding To Do Online Investments
- Setting-up Banking Accounts
- Determining The Organization Policies On Margin Accounts