Investment Clubs Not So Chummy Lately

Some lessons are learned the hard way.

The market slump has not been kind to investment clubs, whose members left in droves as clubs underperformed the market. Over the past two years, the Better Investing Top 100, an index tracking the 100 stocks most widely held by investment clubs, fell 26%, while the S&P 500 fell 22%.

Since 2000, more than 4,000 investment clubs have closed, while membership in the National Association of Investment Clubs (NAIC) has fallen 23%. And the problem isn't going away -- NAIC membership is off 2% since the beginning of 2002.

This is quite a departure from performance during the bull market. From 1997 until 2001, the Better Investing Top 100 had a five-year annualized gain of 12.2%, easily topping the S&P 500's five-year annualized gain of 9.2%. As the bull market raged, NAIC membership skyrocketed, peaking near 600,000 in 1998. People rushed to form investment clubs, which typically have 15 members who pay dues, attend monthly meetings and manage a group portfolio. ...