Silly me, I thought “DRIP” was just a setting on my beloved coffee maker.
In fact, I’ve recently learned that DRIPS could be a great investing strategy for someone like me. Are you like me? You might be, if any of the following apply:
+ You’ve got a long time horizon before retirement
+ You can only spare a little right now to invest for the long-term
+ You’d like to save yourself brokers fees and buy stocks from companies directly
What are DRIPs? Dividend Reinvestment Plans. I’m just starting to read about them and so far they sound very, very promising. You can buy stocks directly from the company (with minimal fees) in staggeringly small amounts. You agree to reinvest all dividends. This makes it possible to literally buy in tiny, tiny increments every paycheck. What a great way to supplement your other investing. Or, like me, the ability to buy and hold small blocks of stock.
I’ve been reading a book called “Eight Steps to Seven Figures: The Investment Strategies of Everyday Millionaires and How You Can Become Wealthy Too” by Charles Carlson. That title is long, but not nearly as seemingly long as the time horizon to pay off my student loans.
Yet, maybe like you, I’ve come to realize that I can’t put off investing just because I (currently) have loan debt. With time on my side it seems to make sense to start NOW. Buy-hold-buy-hold, etc.
DRIPs are very appealing because they don’t take much money to start. People profiled in the book treated these small investments as just another weekly bill. Soon, they had amassed enough that, along with the compounding effects of time, they’d accumulated a lot.
You can use Geezeo to track your expenses so that you can find those small amounts to invest. Small amounts over time equal big amounts!
Here are some links on DRIPs (sorry, no points for good design!):
http://www.fool.com/DRIPPort/WhatAreDRIPs.htm
http://www.dripinvestor.com/index.asp
Punk band, “The Drips”: http://www.myspace.com/thedrips
September 23rd, 2007 at 5:02 am
super job on drips have been reading some site called the moneypaper? they seem to charge for a sub do you know any service like theres for less?
September 23rd, 2007 at 11:04 am
I am just beginning my understanding of DRIPs. Some charge small one-time fees to join their programs. All require a minimum deposit to start. The “dripinvestor” link above offers two free downloads to get you started. The first (in the yellow box, “attn WSJ readers”) is a PDF of companies that offer DRIPs. It tells you how much initial investment they require, and a phone number. This site also gives away a free hardcopy sample of their magazine. I have no association with them but this is where I’m starting to read up. Good luck, let me know if you decide to invest in any of them!
September 24th, 2007 at 11:17 am
I really like the coffee maker image. And I should mention that a great way to do this is by using Zecco – it makes buying small amounts of shares on a regular basis even more painless since there are no trades for commissions. Imagine the $ you’d save on broker fees if you use this strategy!
(Disclosure – I work for Zecco & I love it). If you’re interested in learning more, feel free to join the Zecco group on Geezeo.
October 3rd, 2007 at 12:16 pm
[...] other week I talked about DRIPs. They are a great way to invest a small amount of money ($250-$500 to start), and then let the [...]
October 5th, 2007 at 4:01 pm
Great explanation about DRIPS. The diagram is amazing. DRIPs provide a nice way for first time investors to “get their feet wet”.
October 14th, 2007 at 10:59 am
Wouldn’t Sharebuilder be great for setting up DRIPS with any dividend yielding stock?
February 23rd, 2008 at 11:20 pm
I find DRIPS are best in a ROTH. I use Vanguard Index funds, the dividend reinvest automatically however many times a year, plus each month I automatically fund the investment. The Vanguard Index Funds are great because they are no load, and have very low expense ratios.
If you look closely these type of funds beat most mutual funds because they match their index percentages, have less of a turn over, and match the markets most years. Most successful investors realize greater gains by simply sitting on Index Funds for the long term, than by buying and selling individual stocks over and over again. By doing the latter your funds are eaten up by brokerage fees, unless you are using a trading platform like zecco.com, where you can trade for free.
Good article, I highly suggest using a drip in your ROTH IRA or your ROTH 401k, boy do I wish my company offered the new ROTH 401k.
K