DRIPs
No, I am not calling you a “DRIP”. Rather, DRIPs, also known as Dividend Reinvestment Plans, have been around for a long time. It is a great way to build your wealth in a slow, methodical, systematic basis.
Anyone can open a brokerage account to buy stocks. Unfortunately, for some people the requirement to buy a round lot (100 shares) of a stock does not allow them to properly diversify. Another issue is that many people feel they should only buy “growth” stocks which pay little or no dividends. If you study the stock market over time you will see that more than 40% of a stock’s total return comes from dividends.
Prudent investors have taken their dividends and reinvested into more shares. Over periods of times those small investments begin to blossom into many shares. Keep in mind dividends are taxable whether you receive the dividends or reinvest them. (This is known as constructive receipt in the tax code. Picture your savings account in which your interest is reinvested, but, you still must pay tax on the interest earned.)
With dividend tax rates at the lowest in history (15% presently), then, why not take advantage of these low tax rates.
You can participate in a DRIP with many companies. You simply must purchase a minimum of 1 share of that company’s stock. You elect to have dividends reinvested and, voila, it is done automatically. It does not require further investment, unless you desire, and is a fantastic wealth building tool.
May I suggest, as you teach your young children about investing, to have them start in a DRIP program. They, and you also, by only having to buy 1 share of a company’s stock could invest in 15-20 different companies with a small amount of money. Remember the kids are watching you and will mimic your money tactics.
Others may think you are a “drip” for doing this, but, it will “drip” a fortune into your lap in later years.
Here are some great websites to learn, investigate and test out the process.
www.dripcentral.com
www.drip.fool.com
www.moneypaper.com
www.sharebuilder.com
www.equiserve.com
www.buyandhold.com
Of course, you can go straight to the source. Companies that offer DRIPs post information about their program on their websites.
I hope you get wet with all the money “dripping” on you in the future.