Batanai Matsika THE Reserve Bank of Zimbabwe has now introduced gold coins to the market with a strategic intent of boosting savings and investments in the broader economy.
The gold coins are available in both local currency (ZWL) and United States dollars (USD) (and other foreign currencies) at a price based on the prevailing international price of gold and the cost of production.
Piggy believes that it is a positive development since it broadens the universe of investable assets for investors. The Mosi-Oa-Tunya Gold Coin should be seen as an alternative investment to the USD, stock market and properties market.
However, a key concern is access. A single coin sells for approximately US$1 800 which makes it very difficult for the retail or unsophisticated investor to participate.
That said, PiggyBankAdvisor has set up a framework for Investment Clubs that are focused on different asset classes, including gold.
Investment Clubs are an important vehicle for one to invest in different asset classes, such as commodities (gold), shares, and properties.
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An investment club is nothing more than a small group of individuals, generally consisting of between 10 to 15 members and usually composed of friends, co-workers, church members, neighbours, or family members.
These people then pool a set amount of money and meet on a regular basis (usually monthly) to invest in a combined investment club portfolio. This has the advantage of bringing a diverse group of people together, each with his or her own insights, experience, and investment knowledge, which might not all have been available to you on your own.
Investment clubs are a great way for new investors to learn more about investing without risking a large amount of money.
The following are some of the reasons why one might want to be part of a PiggyBankAdvisor Investment Club:
Social An investment club makes investing sociable. Meetings take place at members’ homes, in restaurants or at pubs, where you discuss investment ideas. This is far more fun than agonising over decisions all by yourself.
Education In an investment club you pool your knowledge, brainstorm ideas, and get everyone’s input when you make a decision. This is one of the best ways to improve your investing expertise.
Diversification A key principle of investing is not to hold all your eggs in one basket. In an investment club, however, your money is pooled with others. This means that the investment club can invest meaningful amounts in a properly diversified portfolio.
Informed investments The collective brain power and experience of people who each have knowledge and experience of different market sectors will produce opinions and information that will guide you to sensible decisions.
Profit opportunities Research shows that collective investment decisions based on discussion and democratic choice are more likely to produce sustained profits. By pooling your money with others, you can also own a wider range of shares.
Spreading the workload
Research and analysis into potential investments can be structured and spread between club members.
Low risk Pooling a relatively small amount of money with others every month will be an ideal way to gain hands-on experience of how the stock market works.
Piggy notes that there is a need to choose an appropriate legal structure for your Investment Club. The setting up of a voluntary association is recommended. This is a group of individuals who come together to share a mutual interest, but without forming a legal entity.
As the club is not a legal entity, any contract it enters must be done by a member on behalf of the club. Forming a voluntary association requires only three or more people agreeing to achieve a common goal. It is recommended that investment club members adopt a formal written document called the Investment Club Constitution and Rules.
Advantages Simplicity: There are low or no set-up costs and it is the least bureaucratic structure. It is also relatively cheap.
Easy administration: There are no formal registration requirements or the need to notify any public register of the people serving on the management committee.
No statutory procedures: There is no set process to be followed for members’ meetings, etc.
Tax benefits: Your club will not pay income tax. Instead, all members will be taxed on their profits at their personal tax rate.
Disadvantages No separate legal personality: The ownership of club assets lies with the individuals acting on its behalf.
Contract requirements: Formal contracts must be drawn up for office bearers. This can cause technical difficulties when office bearers change.
Personal liability: The management committee could be personally liable for debts if the club is unable to meet its debts and liabilities.
Overall, gold is viewed as a haven asset and has successfully preserved wealth throughout thousands of generations. Investing in gold coins through an investment club is definitely a good way to save money and build wealth over time.
Matsika is the head of research at Morgan & Co and founder of piggybankadvisor.com. — batanai@morganzim.com / batanai@piggybankadvisor.com or mobile: +263 783 584 745.