I’m seeing a trend cross my desk in my practice right now that concerns me. More and more business owners are coming in with K-1s from investment groups. These are private deals, pooled capital, big tax-savings promises - and when I look under the hood, “the math don’t math” as they say.
Some of these groups are legitimate. But some of them are structured in ways that leave the investor holding all the risk and none of the oversight. Before I tell you what to watch out for, I think it’s worth understanding how we got here — because investment clubs didn’t start this way. This is Part 1 of a 3-part series.
It’s a longer email, but I want you to read it. This is important.
A group of people in Detroit formed something called the Mutual Investment Club of Detroit. The idea was simple: pool small amounts of money, meet regularly, study stocks together, vote on what to buy, and learn by doing.
That was it. Just regular people who wanted to learn how investing worked - together.
In 1951, the National Association of Investment Clubs (now called BetterInvesting) was founded to spread the model nationally. They created local chapters, educational programs, stock-study methods, meeting formats, and resources so anyone could start a club without inventing it from scratch. It was like a franchise for financial education, without being a formal franchise.
And it worked, and it solved a real problem.
The problem was this: “I don’t know enough, I don’t have enough money, and Wall Street isn’t built for me.”
That was the truth for most Americans. Walking into a brokerage office in the 1950s, ’60s, or ’70s felt intimidating. The language was unfamiliar. The minimums were high. The whole system was built for people who already had money, not for people who were trying to build it.
Investment clubs changed that. A 1992 description in the Los Angeles Times captured what the average club looked like: about 20 members, 12 stocks in the portfolio, and each member investing $34 a month. That’s it. Thirty-four dollars.
It wasn’t about getting rich fast. It was about learning, together, with real money on the line. Just not enough to ruin you.
Several things happened at once. The stock market was booming. 401(k)s were becoming the norm, which meant regular people had to manage their own retirement money whether they were ready or not. Discount brokers like Schwab made self-directed investing easier and cheaper. And the media started covering successful investment clubs as feel-good human-interest stories.
The result? The number of clubs belonging to the National Association of Investors Corp. went from 7,000 at the end of 1990 to 37,000 by 1998. At the peak, 500 new clubs were joining every single month.
If you were around in the ’90s, you probably remember them. A women’s investment club from a small town in Illinois became national celebrities. TV appearances. Bestselling book — The Beardstown Ladies’ Common-Sense Investment Guide — reportedly sold 800,000 copies. Their message was pure Main Street: “If we can do this, so can you.”
Their claimed returns were later challenged and corrected. But by then, the cultural impact had already landed. They made investment clubs feel friendly, social, and possible for regular people, especially women, who had been largely ignored by traditional brokers.
By 1998, BetterInvesting had more than 700,000 active members worldwide, supported 36,000 clubs, and represented portfolios totaling $175 billion.
Education + access + small-dollar participation + community + social proof. Remember this formula.
That combination was powerful because it was honest. Nobody was promising overnight wealth. The whole point was: learn first, invest small, grow together, and make informed decisions over time.
It was a model built on trust, transparency, and shared learning.
The internet removed geography. Online communities replaced living-room meetings. Today Discord groups, Substack newsletters, paid research memberships, and social-media “Finfluencer” ecosystems picked up where the original clubs left off.
The original idea — people helping people learn about investing - didn’t die. It just changed shape. And not all of those shapes look the same.
Next week, I’ll tell you what happened when the model shifted from education to access — and how “investment club” started meaning something very different.
That’s where the story gets complicated. And it’s where business owners and anyone with a nest egg to invest needs to start paying attention.