Investment Club vs ETF: Which Is Better for a Group of Friends?

The case for ETFs

Index ETFs track a broad market index (like the S&P 500 or FTSE All-World) at very low cost — typically 0.03% to 0.20% per year. They're diversified across hundreds or thousands of stocks, require no research, no meetings, and no treasurer.

The data is unambiguous: over long periods, most active managers — including most investment clubs — underperform a simple index fund after fees and taxes.

For a group of friends who just want to grow wealth together, putting the same monthly subscription into a shared ISA account (for UK members) invested in a global index fund is perfectly reasonable. It's simpler, cheaper, and probably more profitable.

The case for investment clubs

Investment clubs offer things ETFs can't:

• Learning by doing. Researching a company, debating the bull and bear case, then watching your thesis play out (or not) teaches you more about investing than any book.
• Accountability and discipline. Monthly meetings and regular contributions are a commitment mechanism. Many people invest more consistently as part of a club than they would alone.
• Social enjoyment. For many clubs, the meeting is as much about the people as the portfolio. A monthly gathering with friends who share an interest in markets has real value.
• Collective research power. A group of 10 people can cover more ground than any individual — especially if members have different professional backgrounds (healthcare professionals analysing pharma, tech workers covering software, etc.).

The real comparison: what do clubs actually return?

Studies of investment club returns are mixed. BetterInvesting's own surveys show that clubs with long track records and disciplined processes often outperform — but the average club, especially in its early years, tends to underperform the index.

Common reasons clubs underperform:

• Too concentrated in a small number of stocks (less diversified than an ETF)
• Tendency to buy recent winners and sell recent losers
• Transaction costs from frequent trading
• Poor sell discipline — holding losers too long and selling winners too soon

Our own club has been running for 11 years with an IRR of ~18.4% — which beats most benchmarks over that period. But we'd be the first to say that not every club has the same experience, and luck plays a role in any 11-year window.

Tax: clubs are more complex

An ETF held in a US brokerage or UK ISA is extremely simple from a tax perspective. Capital gains are only realised when you sell the ETF itself.

An investment club creates a taxable event every time the club sells a stock — and each member must report their proportionate share on their own tax return. In the UK this means Section 104 calculations, CGT allocations, and Form 185s. In the US it means K-1 figures, LTCG/STCG splits, and potentially §704(c) if members contribute stock.

This isn't a reason not to run a club — but it's a real ongoing overhead that the ETF option doesn't have.

Who should start an investment club?

An investment club makes sense if your group:

• Is genuinely interested in researching individual companies
• Wants the educational and social experience, not just the return
• Can commit to monthly meetings and contribution schedules
• Has someone willing to take on the treasurer role seriously

An ETF makes more sense if your group:

• Mostly wants to build wealth with minimal time and complexity
• Doesn't have a shared interest in stock research
• Is primarily motivated by the financial outcome

Can you do both?

Yes — and many experienced investors do. Use low-cost index funds for the core of your portfolio and the investment club for a portion of your discretionary money. The club gives you the learning and social experience; the index gives you diversification and simplicity.

Some clubs even allocate a "core" portion of their portfolio to index funds and discuss individual stock picks for the remainder — getting the educational benefit without betting everything on single-stock selection.