Q............
Hi Tom,
I have been giving some serious consideration to starting an investment club. My wife and I will be attending a party this evening and I will be talking with some of my potential club members. (They don't know about this idea yet , but they do realize I don't set any records picking my own stocks) I would love to use A.I.M. as the basis for the club but none of them have ever heard of it. I guess we will maybe start out as most clubs do and at some point maybe I can convince them of the A.I.M. way , assisted by Newport. I am sure they will insist I provide each of them with the book..
Has anyone reading this message ever been in a club? Did you use A.I.M ?
The Old Green Mountain Boy
A..............
Hi Sir Fox, I've given some talks at investment clubs in the past. Most clubs are set up to use Dollar Cost Averaging (DCA) as the method of accumulation. I would highly recommend setting the club up with the concept of TWINVEST instead of DCA besides the greater efficiency that Twinvest offers.
There's a couple of other reasons.
1) DCA doesn't allow for the build-up of any cash reserve. This means that once you've finished the "accumulation" phase in a particular holding, it's not easy to start an AIM account with it since it would require selling a portion of the holding to raise the needed cash. Twinvest builds an appropriately sized Cash Reserve as it accumulates shares. Then, when you are ready to roll that stock into an AIM position, (say at $6700 value) it already has the needed cash and in the right proportion. Then you start the next position the same way. After that, each position AIMs itself with its own cash reserve.
2) Since clubs rarely carry any surplus cash, they never have the luxury or being able do serious downward averaging. They can only buy extra shares with that month's "allowance." Twinvest has deeper pockets and can do a better job of averaging down during periods like September and October.
Cash has other benefits that most clubs don't enjoy. When a person decides to leave the usual club, since there's no liquidity, the remaining members must sell shares to "buy out" the leaving member. This creates a double whammy - the loss of that person's contribution and usually an unplanned TAX BURDEN for those who remain. With cash on hand, there's greater flexibility and probably better tax planning.
A TWINVEST/AIM club would have a steadier stream of taxable events than most clubs. During the formative period, there'd be almost no taxes since you'd just be buying. However, once some stocks were rolled over to AIM accounts, the taxable events will start. Unlike traditional clubs, the AIM club wouldn't have the big single tax hits that come periodically. Everyone would expect to have some taxes every year rather than none for 3 years and then a whopper in the fourth.
NAIC usually coaches clubs to use DCA. They believe there's only one way to run a club. However, there's quite a bit of variance in just how clubs run. Most, however are stuck on DCA. This is because they don't know about Twinvest. NAIC's stock selection processes are not bad and concentrate on fundamental analysis. This won't hurt an AIM account!
Please keep us posted on your efforts, it will make an interesting saga as it unfolds!!
Best regards, Tom |
