Dividend Reinvestment Plans
Your Secret Weapon
DRIPs, otherwise known as direct investment plans, allow individuals to buy stock directly from companies without a broker.
Once you are enrolled in a direct investment plan, you can make small investments over time. This means you don’t need a big lump sum to build a stock portfolio.
How can DRIPs help me?
With the market in such turmoil, you might not want to invest a large sum of money at any one time. With DRIPs you can get started with a single share of stock and build your holdings over time without paying fees when you invest. That means that you can start investing with next–to-nothing—and build up positions slowly over the years. With many DRIPs, there are no fees or commissions for purchases of stock, and you can invest as little as $10 or $25 a month.
Succeed by dollar-cost averaging
The concept is simple. You invest the same fixed dollar amount on a regular basis. By investing a dollar amount instead of a share amount, you buy as many shares as your investment allows instead of paying for the same number of shares regardless of price. By doing so, you automatically buy more shares when the market price is low and fewer shares when the market price is high.
Avoid fee-driven DRIPs
Most DRIPs charge little or nothing to buy more stock. But fee-laden direct investment plans seem to be popping up every day, and in some cases these high fees are ruining the plans offered by great companies. Some plans cap their fees at $2.50. This may not sound like much, but if you were to invest $25 a month, the fee would gobble up 10 percent. At a $250 investment, the $2.50 would represent a still hefty 1%. We are making this point to alert you to the problem of fees and encourage you to take fees into consideration when you make your regular investments. You can use the Search function at this Website to find out which companies charge fees, and the amounts.
Getting started is easier than you think
You may think that creating and maintaining a stock portfolio is a daunting task--one you might better leave to the professionals. The truth is, however, that you can minimize investment risk and cut your investment costs by doing it yourself. The process is not as difficult as some would have you believe. In fact, it can be fun.
Many DRIPs require you to own at least one share of stock to participate. That was a problem for many people. And that problem was solved by Temper of the Times Investment Services Inc. Launched in 1996, the service will buy the single share to make you qualify as a shareholder (or up to 100 shares), it will have the shares registered in your name, and it will deal with the transfer agent to get the DRIP account open in your name on the company books and records.
Temper does all the paperwork necessary to get the account open for you. It's the most efficient way to open an account. Temper buys the shares at the beginning of the month and transfers the shares immediately to the appropriate transfer agent, along with the proper registrations for the shares.
Once the account is open, you are no longer a customer of the Enrollment Service. Your account is open directly on the record of the company in which you are investing. The company will send you a statement showing your ownership. The bottom portion of the statement can be torn off and returned to the company along with a cash investment.
Patience
DRIP investing is meant for the long-term. Although many companies allow you to sell DRIP shares daily–type a company’s name into the Search function to see its selling schedule--traders need not apply!
Regardless of one's age, investing can trigger emotional reactions that lead to mistakes, so the most important trait that you will need as an investor is patience. Some people see no difference between day trading and investing. Before you embark on building a good portfolio, then, it's necessary to remind yourself that doing so involves long-term thinking, not instant gratification.
If you already have a stock portfolio, this may be a good time to examine how well it meets your current and long-term needs. If you don’t have a core portfolio, this is a great time to establish one.
We recommend that your core portfolio be invested in DRIP stocks. You can use that portfolio to accumulate assets in a risk-reduced manner. Over time, you will find that you have built up substantial numbers of shares, which will result in great wealth.
