Step 5.Vse on accounts such as DRIP

Step 5.Vse on accounts such as DRIP
"The discipline, time and compound interest - these are the three main components of successful investing. And not the amount of money with which you start."
If you've read our "13 Steps" to this point, you may already feel like to invest in individual stocks that you choose yourself. However, you may be concerned about one thing: if you have enough money to begin with? This question bothers most novice investors, and we sadly suspect that he is one of the mainreasons why many people never start to invest in stocks. They believe that this occupation for the rich, or at least, for those who have money.
We want to reassure you: you have very little money to start investing. If you can find at least $ 20 or $ 30 a month, you are ready to invest in stocks, you can do it. You do not need to pre-collect $ 3,000 or the amount of such order. $ 200 to start would be sufficient.
There are many ways to transfer your dollars into stocks. The most common way is a one-time purchase of all shares that you plan to purchase. If you want to have 100 shares of Coca-Cola, but they sell for $ 65 a share, you can take $ 6500 and buy these shares by paying your broker with low commission fees modest $ 20 or less. Alternatively, you can participate in "dividend reinvestment plan" of Coca-Cola (often called Drip, dividend reinvestment program) and spend only $ 10 a month for shares of Coca-Cola, in essence, buying every time part of the action - and not pay any commission at all. Drip name does not sound too appealing, but it is justified. You reinvestiruete dividends, but at the same time add funds to their capital - ideally monthly. Cap ... drip ... drip ... Over time, your wealth grows.
Dividend reinvestment plans (DRP) and direct stock purchase plans (DSP)
These two programs are a special type of investors can do without the help of brokers (and broker commissions to avoid!) And buy shares directly from the company. The popularity of these plans has grown rapidly in recent years, and today they are offering more than 1,000 major corporations.
With regard to dividend reinvestment plans, the company usually requires you to already own at least one of its shares, before you are able to participate in this plan. Moreover, this action should be executed in your name. This means that if you're not already a shareholder, you have to buy at least one share through its broker or service Drip.
If you decide to use the services of a broker, you have to pay a commission on the initial purchase. (For more on how to choose a broker, read Step 6.) In addition, in order to buy you will want to note that you want to share (or shares) was registered in your name. Brokerage firms often register the shares on a "common name", which means that if you buy a stock through them, it is registered in their name. This is usually not a problem. This means that they shall keep your certificates, which you simply sell shares quickly, without having to send certified mail.
Once you get one or more shares in your name, you can open an account type of DRP in your chosen company and not buy additional shares directly from the company (or its agent).
Direct stock purchase plans are largely the same way, except that to participate in them you do not need to own at least one of the company. That's right: you can buy your very first campaign with the help of this program.
Plans for DRP and the DSP is very little different from each other. Some are charging you a few pennies when you buy a stock, while others (such us love more) do not charge anything. Some take a small fee when you sell, some do not. Some allow automatic regular purchases by taking money directly from your bank account if you want to. To participate in some of these plans need to sign a contract seriously, others do not. You need to learn all the details of the plans you before you decide to participate.
Benefits
It is obvious that such programs are a great option for those who do not have large sums of money he can invest all at once.
They are good as well and that reinvest all dividends owed to you. This can be very profitable. Many investors do not appreciate all the attractiveness of dividend reinvestment. Let's consider an example.
If you held shares of Coca-Cola for 18 years, from 1981 to 1998, they would bring an income of 4.718%. That means 24% per year. (Who said that the huge international companies grow slowly?) But wait, there's more. Here's the "secret formula of investing in Coca-Cola": if you reinvest all dividends on the shares you intended Coc a-Cola, your total winnings would be 56% higher, ie 7.364%. In terms of annual growth, it is - 27% per year.
$ 5000 invested in Coca-Cola in 1981, would rise to about $ 240,000, without reinvesting dividends. In the case of reinvestment of dividends, this amount would become about $ 373 000.
More than 100 companies offer plans that will provide investors with additional revenue, enabling to buy shares at a discount to the current market price. These discounts can range from 1% to 10%. Thus, the investor receives an immediate return on investment and sometimes does not need to make any payments for the start of participation in the plan or for the purchase of shares. Nevertheless, some companies give a discount only for those shares that are bought on dividends, not stock, buy more for cash. But in any case, such a discount - a very useful thing.
Another advantage of such plans is that they allow you to slowly finish building its position on the shares over a long period of time. This may seem not too important, but imagine that you want to invest in shares of Wal-Mart, which now looks extremely overvalued. If you are an ordinary investor, do not use plans DRP or DSP, you most likely will not immediately make a deal, but instead wait until the stock price will drop slightly. If it never drops, you have missed your luck. But if you participate in one of these programs and have decided to invest small amounts of money in the stock Wal-Mart each month, you will immediately set up a position on the stock and continue to increase it. If the stock price falls, you make your regular amount of money can be spent to buy more shares. (And you can even try to send in those months, more money than usual to buy more shares.) If it continues to rise, the shares that you have already purchased, will also grow in value.
Finally, these plans are the best solution for those whose incomes are limited, as well as for those who want to invest regularly. With DRP or DSP software you can buy at one time shares worth $ 1,000, and sometimes even more. In practice, you can view these plans, if you buy each share once the broker. The reason that you might be interested to consider the plans at an angle - is reinvesting dividends. Keep in mind, however, that some brokers are now offering dividend reinvestment without fee. For those who have the disposal of large amounts of money, DRP or DSP programs are no longer so important a few years ago.
Limitations
Even in the sun are sunspots, and these plans - is no exception. The primary headache associated with them, is the paperwork. If you regularly invest small amounts of money in a dozen companies, you will receive a status report on each plan in which you invest, every time you make a regular amount of money. You need to be very organized and write down all your transactions for tax purposes. The calculation of taxes can be quite tedious if you participate in the DRP or DSP programs and there is no accurate records. Fortunately, the market is a good software that can simplify much of this paper hassles.
Another drawback, though for most literate investors he was not supposed to be the main, is time. Let's say you like the stock price, and you want to buy it immediately. If you use a broker, you can simply call or execute a transaction using your computer online. However, using dividend reinvestment plans, you'll have to send the form and check. It will take some time. In addition, many plans for buying and selling are carried out only once a month, which further delays the process. So you can not enter into action immediately when you wanted to, and as a result you can pay a little more than they were worth before. Similarly, if you want to sell a stock, it may not happen immediately. The process can take several weeks. For those who send checks on a regular basis - perhaps monthly - these delays do not matter. But be aware that they exist.
Additional information
All necessary information about the programs DRP and the DSP can be found at Netstockdirect.com. This site offers details about nearly every program of the 1600 DRP and DSP. There you can download the information necessary to begin participation in the plans, and can even start an online direct investing in 300 companies (the list grows). It is very convenient!
The website National Association of Investors Corp. (NAIC), an authoritative organization of investment clubs, there is a service by the beginning of the program DRP, "The Low Cost Investment Plan." For just $ 7.00 plus the price of one share of each of the participating companies, you can begin participating in the program, and then increase the amount of your shares for a small fee or even free of charge. However, you must be a member of the NAIC, where the annual membership fee is $ 39. Other information you get if you go to the specified site.
Other Resources
Web-site The Moneypaper provides information on more than 1,100 companies offering the program DRP. The site also has a service began participating in the programs, which allows you to buy the first shares and begin to participate in programs for a nominal fee.
Clearing House for direct stock purchase plans, where you can call 800-774-4117, is a free service that allows investors to order five prospectuses of companies offering DSP. (This service is only for direct stock purchase plans, but not for dividend reinvestment plans).
Perhaps, until enough information on this issue. Proceed to Step 6.