A drip here and a drop there...
Oct 03 '00
Many publicly traded companies offer an interesting option for purchase of their stock. You can sign up for a DRP investment plan, and send in money, hopefully on a regular, monthly basis, but in reality when you have it, to be invested in their stock.
In most cases, you don't even have to pay a commission on this purchase! What a deal!!!
Instead of placing your pennies in a piggy bank, DRP (pronounced drip) investing makes a lot of sense. Is there risk involved? Yes, but so it is with life itself. Most companies that offer DRP programs are fairly stable, mainstream firms that will probably be around long after we are gone. And that means they survived because over the long term, they made a profit.
Back in the days when brokers only charged a commission based upon the percentage of overall purchase, without a minimum, I bought one share of Standard Oil of New Jersey. I was fifteen years old at the time, and had to get my mommy and daddy to sign off on this huge $75 transaction. Had I continued to plunk down my hard earned dollars in this fashion, I would be quite wealthy today. Unfortunately, the glitter of a sports car caught my fancy, and I decided to invest in it instead.
My investment was interned some years ago, providing wonderful levels of iron oxide (along with some other nasty, noxious chemicals) into Planet Earth. If only I had bought more stock in oil, instead of quarts of oil...
If you start at a reasonably young age (under 50, but preferably by 21), and drop your money into drips, when you become my age, you will be considered to be a great financial wizard. While it is true that in the short term your stocks may fluctuate greatly, in the long run, small investments will pay off big time.
Be aware that the stock market is extremely fickle. Ultimately, there is only one criteria for picking a stock: Will it make money over the long term? Use common sense. Don't invest in a manufacturer of covered wagons. Consider those firms that have withstood the tests of time, and can continue to renew themselves as the world changes. Companies that have a history of reinventing themselves are more likely to continue to follow that practice, as it is part of their corporate identity. Firms that are set in their ways will fall by the wayside, leaving you with a worthless piece of paper saying that you once owned some shares that were being held in trust for you.
You don't have to invest in a high-flying company to become wealthy. You do need to pay attention to such things as profits, P/E (price-to-earnings ratios), and market volatility. Try to find stocks that have a P/E of at least 5, and less than 25. This is probably the largest single consideration for a long-term investor.
If a stock tends to jump around in price without any rhyme or reason, don't buy it. Pick out the tried and true, and drip investor will assure you a healthy return on your investment.
Finally, don't forget that it's fun to watch your investment grow. True, you may groan a bit when the overall market takes a dive and your stock goes down with it, but overall, you will likely make money.
Downsides: If this entire country goes down the tubes, your stock will probably become worthless. But even if the stock market crash of 1929 were to happen again today, you could continue holding on to your stock and likely re-coup your original investment and still make a profit.
For more information, consider visiting these sights:
http://www.investorama.com/story/drips/dripguidecontents
http://www.fool.com/school/drips.htm
http://www.dripadvisor.com/
http://stocks.about.com/money/stocks/msub_about_drip_investing.htm
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Epinions.com ID:
gordell
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Member: Glenn Ordell
Location: Ka`u Area, Hawaii, U.S.A.
Reviews written: 101
Trusted by: 10 members
About Me:
I wear numerous hats: computer guru, wood worker, musician, teacher, business owner.
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