Lux Investing - can somebody please take the time to really explain what a DRIP plan is? and if this is a good first time inv.

can somebody please take the time to really explain what a DRIP plan is? and if this is a good first time inv.

i am a first time investor and have been trying to figure out what to do with $1,500. i think i am looking at making the most money i can! (duh) what im saying is, whats a good plan to see solid ROI vs the risk? i have been playing around with the stock market both with real money and doing "pretend" portfolios and noticed quickly that commisions kinda kill ya if you dont have TONS of money to invest!!!! so im entertaing all investment ideas? who knows, i may just go to the casino and play roulette, black and red...thats a fifty fifty right!

Public Comments

I recommend DRIP Plans on a regular basis. I can speak from experience as I have had mine for over 22 years. My annual average return is 10.4%. Pretty solid. The main thing I love about DRIP Plans is, you get to choose from the best Blue Chip Companies in the world. You can choose to purchase Toyota, GE, Royal Canadian Bank, McDonalds or a company from anywhere in the world. They are very inexpensive to start and maintain, and the dollar cost averaging and dividend reinvestment are great wealth builders. I am very happy with my DRIP Plan. Good Luck
Divedend Re-Investment Plans (DRIP) are great ways to accumulate stocks. Many of your larger companies offer them. Basically you buy X amount of shares of divident producing stocks and those divedends get re-invested in buying more shares. Either that or get a low cost Index fund (Vanguard or an ETF)
A Direct ReInvestment Plan (DRIP) is a plan that uses your dividend payout to automatically purchase more shares in the same company. This is not limited to only the giant companies, as almost every company that has dividends should be able to set up a DRIP plan. For a first time investor, DRIPs may be a good option depending on what you want to do. The dividends payed out on only a $1500 principle will be relatively small, so it makes sense to just continually reinvest. This is hassle free for you and it keeps trading from consuming too much of your time. The downside, as you mentioned, is that many places will charge you a commission to perform this function. It is annoying for sure, and it will cut into your bottom line. I would suggest saving up some more money and continually investing a certain amount every month. Start out small with low risk vehicles, such as a mutual fund, while you learn the ropes. It is a fun process for sure. As for roulette, I would not recommend that option. It is one of the worst casino table games for the player and black and red is not fifty-fifty when you consider the single or double greens on the board. If you are really willing to take a gamble with your $1500 at the casino, try playing a game with a player edge like Blackjack, Sports Betting, Video Poker, or regular Poker. These are not easy skills to acquire so have fun.
DRIP is an acronym for Dividend Re-Investment Program. Assume you own shares of a stock that distributes dividends quarterly. Rather than sending you a check for the dividend, your account is allocated additional, generally fractional shares. Example, you own 100 shares of XYZ that is currently trading at $15.00 per share and declares a dividend of $0.05 per share every quarter. This is, in effect, a dividend of $0.20 per share, per year or approx. 1.3%. Let's assume that the shares remain very close to the $15.00 trading price. Then the first quarter, you would receive the equivalent of 100 x $0.05 or $5.00 which is approx. 0.33 shares. Now you have 100.333 shares. The second quarter your dividend is $5.01 or approx. 0.334 shares. This makes the total now 100.667. DRIP programs are a way to increase your holdings slowing without adding more cash. Hopefully, the value of the company is growing over time, unlike our example. If so, then your original ivestment is also growing and the fractional shares you purchased each quarter are also increasing in value. Roulette is not exaclty 50 :50. The house always has an advantage as there are two green numbers 0 and 00. In the long term, they win. If you're not certain, then consider a savings account or money market whereby at least the principle is secure. A few dollars for the unexpected is always worthwhile, especially in these volatile times. /
I think for me personally that they are a waste. The reason is because you don't have as much freedom with your money when you do a DRIP. Whether or not you get your dividends reinvested, you still are going to get taxed on them. Plus, what if the company is no longer buy worthy? You have to cancel your DRIP plan. I was looking into a DRIP with Pfizer but I decided against it when I saw that there is a yearly fee, a fee for when you sell your shares, and an additional charge of .13 per share when you decide to sell. So if you have your $1500 invested with PFE at $21, you will have 71 shares. You decide to sell and then you will be looking at a fee of $34.23 (.13 x 71 shares + $25 trade fee= $34.23) So what is the advantage of DRIPs now? Brokers actually have really low prices now so the only reason why DRIP to me would be a good idea is if you have a tough time saving and you need the deduction to come out of your paycheck. I have dividend stocks and I trade with Zecco.com. If you have less than $2500 then you get charged $4.50 a trade. Over $2500 and you get 10 free trades in a month. If any dividend is given to you then it appears in your account. Now I have the freedom to do what I want with my dividend. I can reinvest it with my company, reinvest my dividend in a better company, or have it in my personal checking account in a few days. By the way, roulette is not 50/50 because of the 2 green spots. So in statistics class in college, we found that if you kept betting you will average a loss of I think 3%. SO stay away from that table! It is deceiving!! A Nobody!!! Hahaha! You crack me up! Please tell me why having your money automatically reinvested is much better than receiving your dividend and deciding to reinvest it yourself? Off the wall? Give me a break.
DRIP's are great investments. One of your respondents asked the question, "What if one of the companies in your DRIP Plan is no longer buy worthy?" I think he misses the point of a DRIP. You get the opportunity to purchase the Best Blue Chips in the world. If you think GE or Walmart or Toyota is going to disappear, then I think you are sadly mistaken. DRIP's can be great investments.
you have received some very good responses to your question. I'm not going to duplicate some of the information or expand on them The response you received from DOM is totally off the wall, he apparently has no investment or advisory experience. It would not be in your best interest to follow such lame advice.