The
Moneypaper and
the News Media
The 12 Percent Investment Research Newsletter
March 25, 2010
So should you pile all your savings into these stocks today? Not at all...
The stock market has enjoyed a historic rally over the last year. The rally
could continue, but I think a pullback - maybe even a sharp pullback - is
more likely. These blue-chip stocks will likely fall with the rest of the
market, although to a lesser degree.
DRIPs are the solution...
Let's say you wanted to invest in Johnson & Johnson. Johnson & Johnson
offers a DRIP. (DRIP stands for "Dividend Reinvestment Plan.") Instead of
asking your broker to make the investment for you, you could call up Johnson & Johnson and buy the stock directly from the company, bypassing the broker altogether. This is the first benefit. Johnson & Johnson won't charge you any commissions to buy the stock. Plus, it'll reinvest your dividends automatically and let you invest small amounts, say $50 or $100, on a monthly basis.
Johnson & Johnson has raised its dividend every year for 45 years at a
10-year average growth rate of 15% a year. By collecting dividends that grow and reinvesting them every quarter, you get the powerful "double
compounding" effect working on your investment. You're collecting high
dividends, reinvesting them, and collecting even higher dividends on those
reinvested dividends.
By investing small amounts on a monthly basis, you get the second benefit.
Because you're investing small amounts each month over many years,
short-term stock market gyrations don't matter. If the market were to tank
later this year, you might only have a few hundred dollars in Johnson &
Johnson shares. You might even want to raise your monthly investment in this scenario.
If you use this plan, I think you'll be surprised how fast your small
monthly investment turns into a large stock position.
I've been writing to you about DRIPs for years. To read my most recent
updates, click here and here.
To start a DRIP with Johnson & Johnson or any other stock you'd like to
hold for the long term, go to www.directinvesting.com. This website runs a
free database of all stocks with DRIP plans. You'll find the telephone
number, website, and prospectus for every DRIP plan you're interested in.
Every month, thousands of readers across the United States rely on The Moneypaper and Direct Investing for timely advice to help them plan their financial future.
And every month, the media--magazines, newspapers, television, radio--request our opinion and ask us for facts to assist them in their coverage of personal financial matters.