- Personal Finance»
- Investing in Stocks, Bonds, Real Estate, More
BEST AND CHEAP WAY TO BUY STOCKS FOR ANY INCOME
Anyone Can Buy DRIPs
BEST INVESTMENT YOUR BROKER WANTS TO KEEP SECRET
The best way to invest in stocks is probably also the least advertised. The reason for this is brokers and brokerage houses do not profit from these type of investments. After the first initial investment, which includes a small fee or commission, 100% of the investor's money goes right into the stock. In most cases there is never another fee or commission nor account fee for the life of the investments.
WHAT IS A DIVDEND REINVESTMENT PLAN?
Dividend reinvestment plans or DRIPs let the individual investor buy stock directly from the company issuing the stock. The advantages are many. First no broker is involved, which of course, means no broker fees. Second some DRIPs let the stock holder invest as little as ten dollars though most DRIPS require a minium of twenty-five to fifty dollars for subsequent buying of shares. So if a share of stock costs $76 dollars and the DRIP holder sends the company $25.00 as an additional investment the DRIP holder will receive a fraction of a share much like how a mutual fund works.
HOW DIVIDENDS WORK
The aspect of how dividend reinvestment plans are named comes from the fact that dividends, instead of being paid to the stock holder, are instead reinvested into the stock holders investment buying additional shares. Investors are also given a choice of getting these dividends in the form of cash which would help retirees with a steady stream of income.
HOW TO GET STARTED IN DRIPs
When an individual buys stock from a brokerage house the stock goes under a “street name” The investor actually owns the stock but for simpler trading and bookkeeping the stock from all investors are kept under the brokerage street name. This arrangement has no effect on how the investor receives dividends or on any trading matters but for an individual stock to be enrolled into a DRIP the stock must have the name of the individual that bought the stock meaning no house name,
Years ago it was easy to buy one share of stock and have the broker transfer the name of the stock to the individual requesting the change at no or nominal cost. Not so today. The cost of transfer change can be quite high as brokerage houses are looking for new sources of revenue. This holds true even with discount brokers.
BEST WAY TO ENROLL IN DRIPs
I have found that the best way to invest in DRIPS is through The Moneypaper found at the website Directinvesting. This is the way I have bought my drips. They have a variety of memberships with the full membership, I think, is a bit expensive (as of this writing $153.00) but includes many benefits such as buying DRIPS for half price $25.00 instead of $50.00 dollars and 12 issues of their great investment news letter and full online research database comparing different DRIPS. They allso allow you to by two featured DRIPS a month for just a commission price of $15.00. Its not uncoomon to find a reduced rate for this membership.
The strategy I used was to get the full membership and buy one stock about once a month. By the end of your membership you should have around 12 different stocks. I have to stress you don't need more than 12 stocks and could do with probably half as much. After the year, cancel your membership if you like and your set to go.
OTHER DRIP IDEAS
The Moneypaper also has an option where you can buy a gift of stock for someone. I have used this to buy one share of stock for my children when they were very young. In doing so you or another adult must become the custodian of the stock until they reach legal age. Imagine buying a stock for someone at the age of 5 or 6 or younger and dividends are payed out for decades. Of course you can buy additional shares at anytime without ever paying a commission cost again.
KEEPING TRACK OF YOUR STOCKS
A simple spreadsheet can be made to track your dividends. I made one a little bit more complicated but a simple one will do fine. It's a great way to track how your stocks are growing in value through additional purchases and dividends.
Here is my Second Part of this article Showing the Stocks I have bought and why.
I have been doing this for years and happy to answer any questions.