Dividend Reinvestment Plans (DRIPs)
The Small Investor's Weapon
Once you are enrolled in a DRIP, you can make small investments (even $10 or $25) over the course of your lifetime. This means you don't need to save up to start building wealth. It also means that you will be saved from the instinct to speculate in the stock market.
How can investing in DRIPs help me?
In volatile markets, you might not want to invest a lump sum of money at one time. The price of the share can vary widely--even on a single day. DRIP investing is a conservative approach to building wealth in the market. You can start with next-to-nothing—and build up positions slowly over the years at a variety of points.
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 ordering a share amount, you buy as many shares as your investment allows instead of paying the cost for the number of shares you ordered. The value of that difference is, by investing dollars, those dollars automatically buy you more shares when the price of the share is low and fewer shares when the share price is high.
Getting started is easier than you think
You may think that creating a stock portfolio is a daunting task--one you might better leave to the professionals. The truth is that it’s not hard to decide on the quality companies you want to own forever and eliminating the broker removes a level of risk. (And, as a DRIP Club member, you have access to Moneypaper editor’s portfolio guidance,) To qualify to open a DRIP, for many companies you must own at least one share of the company stock. Unlike traditional broker/dealers, the shares will be registered in your name on the company books. Once enrolled, you deal directly with the company and there is no broker in between you and the company.
Patience
DRIP investing is meant for the long-term (although many companies allow you to sell DRIP shares daily).
Before you embark on building a great portfolio, 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. The next few years may provide opportunities to buy at below fair value prices. But one never knows the direction of the market. And that’s the value of the DRIP investing method we’ve described. You always will have bought more when prices were low than you did when they were high.