By pooling your funds in stocks or real estate, you can build your wealth together.
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With the new year comes a heightened interest in doing some things bigger and better. If you started the new year with some cash in pocket, you might just be thinking about investing and with good reason: On average, you can stand to gain a four to seven percent annual rate of return on your investment in stocks and real estate, and many say it's easier now than ever before to become a millionaire in this new economy, with about 1,700 people realizing that dream every day, according to Bloomberg. But if you're leery about going it alone and would like some support and guidance, you might want to consider joining an investment group.

"Personally, the idea of pooling resources to balance the scales is extremely appealing," says Jay Moore, founder and CEO of the peer-to-peer matching platform FX HedgePool. "Large institutions have the advantage of economies of scale, experienced professionals, cutting-edge technology, and rich data." Here, we consulted the experts on what to know about investment groups, if the choice is right for you, and how it can improve your own financial standing.

How It Works

"I would define an investment group as a small group of individuals that pool resources together for the purpose of investing as a team," says Moore, "with the hope that their collective insights, experiences, and resources can create wealth."

With the emergence of trading apps like Robinhood, Stash, and Webull, access to the stock market has become easier than ever and simpler to initiate; you can set up an account and start purchasing stocks for as little as $100. Many companies are now incentivizing people to not only start investment accounts by offering a free stock, but they offer complimentary or free stocks to anyone you invite to set up an account as well. As Moore explains, you can think of this as an informal "investment group" of sorts, affording your group the opportunity to trade using the same platform, exchange tips and progress reports, as well as share in wins and losses.

Types of Investments

First, ask yourself this: "My first question when considering an investment group would be, 'What types of investments are we talking about?'" advises Moore. "If you're talking about accessing highly specialized investment managers, then an investment group may create the critical mass necessary to meet minimum investment hurdles that would otherwise be difficult to overcome."

"In most every market, there are specialized asset managers to which we can pay management fees for maximizing performance," further explains Moore. "The extent to which they can create value is based on the competitive advantage they have in a particular investment strategy (stocks, bonds, emerging markets, real estate, et cetera). Typically, the more specialized they are, the higher their fees and the higher their minimum investment requirements." In many cases, he says, this can be restricting to the average investor operating alone. Otherwise, an investment group in typical markets, stocks, and bonds has plenty of options in publicly traded investment vehicles, like mutual funds or ETFs, where fees are incredibly low and you can rely on the expertise of highly qualified investment professionals to deliver solid performance.

The Benefits of Joining

An investment group opens you up to a new network and, in turn, new opportunities. As Moore explains, many local development projects (in residential or commercial real estate) offer residents, friends, family, and investment groups the opportunity to invest in projects that wouldn't otherwise be available in the public market. "Being part of an investment group in that capacity can potentially create opportunity and level the playing field, so to speak, relative to the large investment houses," he says, adding that, "the market has also evolved to a point where fees and costs are highly competitive, making these products incredibly accessible, so the notion of saving on management fees by managing your own money in mainstream investments is weakening."

Do Your Research

Above all, Amanda Holden, founder of Invested Development, believes that it's important to do your homework before agreeing to be a part of any group. "My opinion would just be to do your research—don't take someone else's word for it," she advises, "be extremely realistic as to whether you want a business and money-oriented relationship with these people, and to get legal contracts for absolutely everything."

Finding the right investment group for you may take a little time and research, but that time and effort will be well spent. "Personally, if I were looking for an investment group, the number one consideration would be whether or not this group can open opportunities that can't be otherwise found either independently or through existing publicly available funds," says Moore. "If you can find an investment group that has a network or relationships that can open doors to investment opportunities that can't be accessed publicly, then there's potentially real value there."


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