reinvestment plans (DRIPs) are plans sponsored by companies
in which the individual investor can purchase stocks without
the services or fees of a broker. DRIP investing is generally offered
only by large, well known companies. You may recognize some
of these names: AT&T, Dow Chemical Co., Exxon, Intel, PepsiCo,
Volvo, and Wendy's International.
as little as $25 to $50, you can begin investing in drips from
some of the same high quality stocks that you hear about on
the nightly news, or read about in the paper. So how do you
start? You can contact some companies directly and find out
how to set up an account. Many companies are now offering
DRIPs directly online.
yet, here's how I started investing in DRIPs. Pick up a copy
of the National Association of Investors Corporation (NAIC)
magazine Better Investing (www.better-investing.org).
For a small set-up fee (a few dollars per stock) and an annual subscription
and membership fee, you're ready to begin purchasing stocks. To allow for price fluctuations, you should also include
$10 more than the price of the stock on the day you send in
your check. After you purchase one share, you can generally
set up an automatic withdrawal or make regular deposits into
the good news about DRIPs is that there are no brokerage fees.
Normally, purchasing stocks must be done through a broker.
The broker makes money off of each transaction (buy or sell).
These fees are roughly $7 to $25 for discount brokers and
over $50 for full-service brokers.
the down side of DRIP investing? Not much, but there are a few things
to remember. Dividends are taxable, although the current
administration is looking to make dividends tax free. For now,
you will be required to
pay taxes on the money that you make, but not on the stock
appreciation until you sell shares. DRIPs are not offered
by all companies. If you are looking for smaller companies
with more more potential for growth, you will need to open a brokerage account.
you decide to set up a DRIP account or purchase more shares
in an existing account, you will not be able to choose the
day and time of your purchase. Your purchase will be made
on a schedule set up by the company or the company's trustee.
I have found that rather than being a problem, this forces
me to avoid timing the market and put my faith in the companies
that I have selected.
more information on DRIPs, read Charles Carson's book Buying
Stocks Without a Broker. You can also check out these