Creating Wealth with DRIPs

Since January 1, 2014, the markets have turned topsy turvy, up and down with sometimes violent, unexpected moves. When the good news about job creation was recently released, the market sold off instead of rallying. Or the US Federal Reserve says that they will be accommodative to the markets and the market rallies, only to have a vicious sell off the next day. Investors are on edge, wondering if the bull market will continue or if this the top of the move? Is there an investment program that will provide some security against these events? No investment program is without risk. However, there is one slow but steady program that will help you through the bad times and celebrate when the market rallies. It is called the Dividend Reinvestment Program or DRIP.

What is DRIP?

DRIP is an investment program offered by many companies that allow you to invest a small amount and with the provision that your dividends are reinvested automatically to buy more stock. Some programs will let you make cash purchases of fractional shares on a regular basis. The combination of cash purchases and dividend reinvestment creates a compounding effect to your investment. One 100 year study found that DRIPs beat the S & P by 85 times. Essentially the program works like “Dollar Cost Averaging” where you keep buying shares at regular intervals regardless of the price.

Some DRIP programs are completely free, while others charge a minimal fee like $3.00 and a few cents per share.

How do I Get Started with DRIP?

The Securities and Exchange prohibits advertisement of DRIP programs. Since they are free for the most part, your broker will not mention them to you because he/she receives no commission. DRIPs have often been referred to as “The Old Money Wealth Secret.” Here is just one example of what a DRIP program can do. $5,000 invested in Johnson and Johnson in 1990 would produce $72,000 today.

You will need to search out companies that offer DRIP programs by going to their websites for information. A list of companies that offer free DRIPs can be found at: http://www.directinvesting.com/search/no_fees_list.cfm

You are looking for large multinational companies that have paid regular dividends over the years both in good and bad times. You are also looking for companies that provide basic staples that everyone needs. Examples are Procter and Gamble, Exxon and Johnson and Johnson.

You can search the company’s website until you find the topic Dividend Reinvestment Program. Then you would sign up and set up an account with the amount you plan to invest. Some programs will automatically deduct your investment amount from your checking account. Since you have an online account you will be able to monitor your stocks on a regular basis.

DRIP programs offer ways to invest on a regular basis with as little as $25..00 or $50.00 per month. It can give persons on limited incomes a way to participate in the stock market and build wealth at the same time.

9 Responses to Creating Wealth with DRIPs

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  6. I haven’t found the market to be particularly violent this year, quite the opposite in fact. It seems to be somewhat stagnant. On the topic of drips, these are how index funds work right? With the reinvesting of dividends? Thank!

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