Dividend reinvestment plans (drips) and direct stock purchase plans (dsps)

You can even set up a DSPP to automatically purchase and then reinvest through a dividend reinvestment plan or DRIP. Quick note on that: Back before the early days of online stock investing you had to pay significant trading or management fees to full service brokers if you wanted to purchase stock. And mutual funds, back in the day, had ridiculous expense ratios! In fact, just about any stock purchase — direct or broker — runs this same risk.

Companies that don't charge you fees or commissions to invest directly through its Direct Investment Plan--or DRIP.

Many charge initial setup fees, and some charge for each purchase transaction, sales fees, and more. Usually these fees are low, but they can really add up over time, particularly if you are slowly and automatically adding to your position. ALWAYS read a DSPP prospectus to see what fees you might be charged. Think that looks bad? Contrast that with commission-free ETF trading paired with super low expense ratios of 0. And these records can quickly overwhelm.

Lets say you are invested in 10 DSPP with DRIP plans over a period of 20 years. Any additional automatic purchases would tack on more batches to keep track of. Some purchases may take weeks. Discount brokers, on the other hand, allow you to trade in real-time — so you always know the price.

Even if they were incredibly easy to purchase, easy to record on tax documents, and had no expenses, not worth it due to the inherent risk of buying only one stock. I see absolutely no reason to invest in one of these over something like Vanguard or Betterment. Beyond that, my company does offer an Employee Stock Purchase Plan ESPP , same concept applies to DSPP, except the company offers a discount to purchase.

From there, shares are put into my online brokerage account no expenses for that transaction. My company also offers dividends with a DRIP They now just have the primary option to receive the quarterly dividends as additional shares — no tax implications. Yes, it requires additional effort to ensure an appropriate level of diversification exists, but call me old-fashioned in proudly maintaining some shares from the company I work for.

I would have to disagree with the comments.

I believe DSPP and DRIPs are a good suppplement to a retirement plan. I do not think it is a good basis for majority of your retirement income, however it can be a good supplment to a low cost index fund. I currently am invested in 5 different companies through DRIP plans, all of which use Computer Share as their agent.

DRIP Investing: Dividend Reinvestment Plans and Direct Investing with DRIPs

In order for a DRIP to be worth your while you need to fully research the companies on your own which can be time consuming. I am currently invested in: I will only invest in DRIP plans if the meet a few criteria. The company has to be a blue chip company and have been around for around years.

The company must pay a dividend and have raised dividends consistently over the past years. Following these rules that I have established for myself, I virtually have eliminated most of the big companies that our generation wants to invest in, IE. Google, Apple, Amazon etc.

Are DSPP and DRIPs a good plan for the basis of your retirement funds, no. However, through the rule of compounding and dividend reinvestments, I believe a good nest egg will be built after 40 years, especially if you make a few purchases here and there and then forget about it until you are ready to retire.

I mostly agree with G. There are a good number of no-fee purchase plans usually there are fees to sell, but the whole idea here is to hold for the long term. Computershare makes them easy enough to find by going to Company Research — Plan Search — No Fees.

These plans can be a good way to develop a core of high quality, stalwart-type companies in your overall portfolio. As with any other investment option, avoid fees whenever possible! I just looked into a program called Loyal3-no costs-limited offerings, for sure, but some occasional IPO participation-check it out-Will.

Computershare - investor -

Your article points out many items about DRIPs and DSPs which are DRIPS once established but I feel that you are only pointing to the negative side and omitting the benefits. This may also balance out any fees if they apply all plans vary. Some companies, however, only discount shares bought with dividends, not new shares.

These are known as Optional Cash Purchase Plans OCPs.

These plans often have low minimum investments allowing flexibility to the investor,. To mitigate this is to diversify by investing a number of companies over time which is how all investment strategies need to be managed regardless of method.

Tracking your Cost Basis It is up to the investor to keep track of the transactions to record capital gains.

Each year all dividends are received whether reinvested or not. Keeping a log of this can be cumbersome especially if an investment is held over the long term especially as dividends are paid quarterly.

There is no way around this, but for anyone that hold stocks or dividends outside of a DRIP they still have to do this work and also decide which block of shares to sell when they want to take money off of the table. DRIPS can be the most low cost method out there and can be more advantageous if the research is performed.

It just takes time like anything else. Notify me of followup comments via e-mail. You can also subscribe without commenting. We respect your privacy. Your personal information will not be sold or shared. January 11, 8 Comments.

These plans often have low minimum investments allowing flexibility to the investor, As for the Disadvantages: Thanks for reading — David, from the Personal Finance Squad. Leave a Reply Cancel reply Notify me of followup comments via e-mail. Get posts emailed to you, for free. Most Popular Posts EVER Money Saving Products I Personally Use How to Pay Taxes with a Credit Card and Profit The U.

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