Investing Through a Dividend Reinvestment Plan: DRIP Your Way Rich

Imagine a bucket, filling with water from a leak under your sink. Seemingly tiny and unassuming, you leave the bucket to catch the tiny drips which fall. Over time the drips collect, and add to the water already collected. In a weeks time, without watching or thinking, your bucket is full. “But how? It was only a tiny, tiny leak… how did it fill my bucket so quickly?” The bucket in this analogy is your investment fund, the drips are your cash, and the water collected is your riches, even your millions.

What is a DRIP?

A DRIP or DRP is dividend Reinvestment Plan, which basically lets you buy stock in a company without paying any money to buy it. You may be saying “How is that possible? You need money to invest.” and you would be partly right. A DRIP is a plan companies that are publicly traded offer to anyone who owns at least 1 share or “stock” of their company. After you buy that stock, if it is a large company that offers dividends, you can ask for a drip, which will take or your dividends on your stock and use it to buy more stock without you lifting a finger. This, my friends is fearless, painless, investing advice to getting rich, and living comfortably.

How is this able to make me rich?

Investing a small amount like $500 dollars in a drip and leaving it, say, 10 or 40 years will make you comfortable, but if you add some money from every paycheck to your portfolio, you will be rich. Okay, now don’t tune your face up, “I don’t have 25 years to wait for my money. I want to be rich now.” I understand that so just stay with me. You need to first set up an account with an online stock broker, such as Sharebuilder. I personally use them and they have small fees, and it’s super easy to start a DRIP there.

After you set up your account, you need to think of some companies that you believe will be around for quite some time. This is not picking the next “hot” company or whatever your mom’s friends said he heard from his boss. This about picking a business which will be around, and consistently make you money and make you rich without worry.

Following? Now before I loose you, let me give you a little water in the desert. Let’s pretend for a moment, that in 1988, you decided to gather up your lunch money and invest $100 of your money in Pepsi (PEP), lets then say that with every lawn you mowed or baby you watched, you add a $100 more. So every month since 1988, you invested $100 more dollars into your stock of Pepsi. [I will tell you why I picked Pepsi later]. Do you know how much money with the average rate of return, you would have right now? A small sum of $102,364.33, you would have made $77,764 without lifting a finger. Your few stocks of PEP, would now be 1,505 shares earning you over $100 a month, by doing nothing. Is this your idea of rich?

That was just luck, you say…

It could be luck or it could be the fact that a smart investor picked a good stock.

Picking a stock for the long haul.

The best predictor of future behavior is past behavior. You may not have known that Google would skyrocket, or that Wal-Mart would become so huge, but it doesn’t take a genius to have brought Pepsi. The best way to pick a stock is to look round your home, and the things in your life. Most products like oatmeal, cereal, McDonalds, drugs, aspirin, are from companies that have been around forever. After you pick a good stock, check the earning growth rate, and the old stock prices. I look at charts and see how much the stock has progressed in time. We are not looking for a skyrocket price but a slow and steady progression upwards. Some good examples are General Electric, McDonalds, Johnson & Johnson, and various banks. Pick something people will always need like food, clothing, or medicine.

How do you know this?

I am a young person, who possibly like you had no idea what the heck all these people were talking about. I decided just like you did to educate myself and become rich on my own terms. I tripped and stumbled my way in the darkness and learned pretty much from trial and error. Now that I know, I want to pass along this info to the young people or people who are tired of the big worlds. You may not understand, but just jump in the water, it isn’t all cold as you think.

Can you run that past me again?

Okay, one more time… slower this time. Step one, open an online account. Step two, find a good stock from a reliable “old” company. Step three, buy at least one stock. Step four, [in share builder] click in your settings for a “Dividend Reinvestment”. Step five, step away from the account, until you come back to add some more money. Now, you can start with 5 dollars on share builder, and work from there. You can invest only 20 dollars, or even less and still have a good fluffy cushion.

Drips are the best!

I say they are the best because they take little money, little time, and give big bucks. The dividends in time can pay for you so you don’t have to work. I plan on adding as much as I can to my account so by age 30, I can live off my investments, and travel someplace hot with lots of sweaty guys. Cool, huh? You can use it for college, for your kids, retirement, a new house, or anything. You can still have your job, and with a little put aside you can be rich!

A little encouragement

If you invested $6,000 in Johnson & Johnson, PEP, and GE (General Electric) in the 80’s right now you would have $507,000 in stock money, plus you would be making 14,000 a year without adding another penny. Imagine if you did! So take charge and jump in.

I can’t guarantee that you will be fine because I am not a professional investor, or a real university. I do believe you will be comfortable, but I am not legally liable. Free cheese and Good luck!