Rules to live and invest by.

Today's most successful investment dubs have assets of hundreds of thousands of dollars or more, although they may have started out with only a few dollars. In fact, the archetype for the modem dub, which began in Detroit in 1940, is still active today. Frederick C. Russell, unable to find a job, decided to form the Mutual Investment Club as a way of budding up capital to start his own business.

In 1995, the club's portfolio was worth over $3 million, accumulated from monthly contributions of 10-$25 during its lifetime. Its members have withdrawn over $1 million from the club at one time or another.

Most dubs still adhere to three guiding principles devised by the late Russell. They are:

1. Invest regularly. It doesn't matter whether the market is in a boom, recession, depression or recovery phase, members should invest a set sum every month. Besides, die market's overall trend has been upward, with an average compound rate of about 10%. Moreover, you minimize risks through dollar-cost averaging, that is, by purchasing more shares when prices are lower and fewer when prices are higher.

2. Reinvest all earnings. Most clubs stay fully invested at all times. They rarely turn over their portfolios, instead reinvesting all profits, including dividends and interest. Professional protfolio managers may turn over their portfolios three or more times a year, which means that they will sell and buy stocks that number of times in hopes of garnering higher profits. However, your group should concentrate on being investors, not traders.

3. Diversify your portfolio. The principle of diversification is to spread your investments, and therefore your risk, by investing in several industries, such as financial, health care and technology.

Take into account the members' risk-tolerance level which may be conservative, aggressive or a combination of both. From that standpoint, decide what you are going to invest in: stocks, bonds, mutual funds and/or real estate. Diversifying your portfolio helps minimize risks and maximize returns.

Deciding how and where to invest your money can be a scary proposition. The National Association of Investor's Corporations (NAIC), a 46-year-old trade group in Madison Heights, Michigan, publishes a stock selection guide, making it easier for members to tackle annual reports or prospectuses.

Most clubs require members to research different companies and prepare a report on each for the other members. Look closely at the stocks' one-, three- and five-year performances. Also, look to buy shares in companies whose sales and earnings are moving ahead faster than the gross domestic product, and whose records suggest the stock will be far more valuable in the future. Born in August 1987, the Mutual Investment Club of Montgomery (Alabama) studies the prospective company's financial performance and growth for the past five years, as well as management, debts and assets. The club is composed of 20 women in various careers, from lawyers to doctors to teachers.

Members meet every third Tuesday of the month and contribute at least $40 each to buy stocks in companies from various industries. To date, their portfolio is valued at $60,000, and holds shares in 15 companies, including GTE, McDonald's, Dial, Consolidated Edison and Glaxo Holdings.

Choosing the right stocks means discussions and dissension; selections, however, should be made by unanimous vote or majority rule. There's no room for hard feelings if someone's stocks aren't selected. There are several excellent sources to help club members wade through the murky investment terms and tactics. Check out Better Investing (810-583-NAIC), Investor's Business Daily (800-306-9744) and Barron's (800-277-4136).

Note: Before you can begin investing, you need to open a checking account in the club's name. You will need a federal I.D. Appoint two or three members to sign off on checks, preferably the treasurer, president and vice president. You'll want to have cash on hand to pay departing members without disrupting the club's portfolio.

Next month, we will examine full-service versus discount brokers.