When it's time to cash out: here are some ways to handle club finances when members leave. (Investment Clubhouse).

In the early years of the Black Women Investment Corp. (BWIC) in the Raleigh-Durham, North Carolina, area, it had about 25 members aged 25 to 55, representing various professions from education to engineering. The club was launched in 1988, and since then, has lost and gained several members. In fact, only four of the founders remain, with the current membership at 16.

"Most members left because of life changes--they got married, gave birth, moved out of state, or found new jobs that took up too much of their time," says Saundra Wall Williams, the club's third president and a co-founder.

After selling securities in its portfolio, the club bought out departing members with cash. "We usually leave it up to the person to choose between cash or having securities transferred to her name," adds Williams. "Every month, we look at which stocks we want to keep, buy, or sell. We take stocks that have performed poorly--that fall short of our expectations--and sell them."

The most BWIC has paid a departing member is $11,000, which was three years ago. At the time, the group only had $8,000 in its cash reserves, so it had to sell $3,000 worth of securities. The withdrawing member paid the transaction fees such as broker's commissions and capital gains from selling the stock and her $36 fee to a separate club account used for incidentals, such as club postage, photocopies, and National Association of Investors Corp. (NAIC) classes.

To reduce the amount the group has to pay out in such cases, no one person is allowed to own more than 15% of BWIC'S holdings; plus, individual members can opt to buy out a portion of the shares of a departing member. The latest crop of BWIC members is aggressive; although dues are set at a minimum of $30 monthly, more than half of members invest $75 to $100 monthly.

The first few years of an investment club's existence are crucial, and setbacks, such as wavering and departing members, should be minimized, says Kenneth S. Janke, president and CEO of the NAIC in Madison Heights, Michigan.

Each time someone leaves, the club loses money in two ways. First, there's the departing member's share, whether it is paid out in cash or securities. Second, there are the member's contributions, which equal less money going into the pot each month.

Janke says that whenever a club buys or sells a stock at a gain, it has to discern how that decision will impact the club's overall portfolio. When a club sells securities to pay a withdrawing member, the tax liability rises for the remaining members. The club fares best by selling stocks that show a loss, and then transferring stocks that show a profit.

To cover financial losses, most clubs assess a 3% to 5% penalty charge--that is, the departing member will only get 97% to 95% of what his or her share is worth at the time. If there is no levy on the withdrawn funds, the remaining partners must bear the costs. The NAIC says it could cost a club 3% to 10% or more of its portfolio to pay off a withdrawing member, depending on how long he or she has been with the club and what percent that member owns. All of the rules for paying out withdrawing members should be in the club's bylaws. Such documents should also state when that person would receive his or her money; typically, clubs specify 60 days, giving partners enough time to gather the money.

To date, BWIC's portfolio is valued at more than $150,000 and has holdings in some 21 companies in several sectors, including consumer staples, pharmaceuticals, technology, entertainment, and retail.

While green investors have been frightened off by all-time market lows, BWIC sees this as a buying opportunity. "We have been actively purchasing stock over the past few months," says Williams.

BWIC'S Top Five Holdings

Company      Exchange/Symbol   Portfolio weighting

Home Depot    NYSE: HD                 20%
Cisco         Nasdaq: CSCO             18
Oracle        Nasdaq: ORCL             17
Microsoft     Nasdaq: MSFT             15
Wal-Mart      NYSE:WMT                  8