Dividend reinvestment is an almost given, especially if you own individual companies.

When my brother got off active duty in the mid-70’s, he had some pay in the books. One day a Merrill Lynch salesman called him. Long story short, he bought 100 shares of some company, $1,400, put it on dividend reinvestment, and let it ride.

Last I checked, it was a long way north of $300k.

Now, he had the good fortune to start when the stock market was in the dumps, as well as picking a company which has prospered. He also was immune from the temptation to cash it in and buy something, a new car, or a boat, or a trip to Vegas, all those bright lights of town that appeal to so many.

The first thing you need to determine, before investing in anything,is what your goals and timelines are. That will help direct you to the appropriate investment vehicle.

J, that is a great story. Back in those days the brokers were not so caught up in selling you stuff that made them rich and ripped you off. Good for your brother. Care to share which company it was. Just curious.

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Originally posted by SapperSteel:

6. You escape brokerage fees; my DRIP investment costs average around 0.75%. Even if you invest tens of thousands of dollars at a time, you'll never get your costs down that low using a broker.

You can get much lower costs through many mutual funds. For example Vanguard Total Stock Market Index has an expense ratio of 0.15%, and when the account gets to $10000, you change change to the "Admiral" share class, and the expense ratio goes to 0.04%.

Don't like Vanguard, or don't want to start with a $3000 initial investment?

Try any other reputable mutual fund company. For example, T. Rowe Price Total Equity Market Index Fund has an expense ratio of 0.3%, and you can start with as little as $100.

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They're a stable, safe, long-term, low investment cost way to accumulate wealth.

DRIP investing can involve significant risk, if you are not properly diversified. If you are investing in just a few companies, or worse yet just one, and a major problem affects the share price and profitability of even one company your wealth could be put at great risk.

I'm not saying DRIP investing is a bad idea, but there are other low, and lower, cost options, and some of those options may manage risk better through better diversification.

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Originally posted by JALLEN:
Dividend reinvestment is an almost given, especially if you own individual companies.

When my brother got off active duty in the mid-70’s, he had some pay in the books. One day a Merrill Lynch salesman called him. Long story short, he bought 100 shares of some company, $1,400, put it on dividend reinvestment, and let it ride.

Last I checked, it was a long way north of $300k.

Now, he had the good fortune to start when the stock market was in the dumps, as well as picking a company which has prospered. He also was immune from the temptation to cash it in and buy something, a new car, or a boat, or a trip to Vegas, all those bright lights of town that appeal to so many.

The part in bold being the key, and goes to the point in my previous post about potential risk due to lack of diversification. Had the advisor been wrong about the health and viability of that comoany, then this could have been a cautionary anecdote instead.

A well diversified portfolio is essential to mitigating risk.

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Originally posted by DMF:

quote:

Originally posted by JALLEN:
Dividend reinvestment is an almost given, especially if you own individual companies.

When my brother got off active duty in the mid-70’s, he had some pay in the books. One day a Merrill Lynch salesman called him. Long story short, he bought 100 shares of some company, $1,400, put it on dividend reinvestment, and let it ride.

Last I checked, it was a long way north of $300k.

Now, he had the good fortune to start when the stock market was in the dumps, as well as picking a company which has prospered. He also was immune from the temptation to cash it in and buy something, a new car, or a boat, or a trip to Vegas, all those bright lights of town that appeal to so many.

The part in bold being the key, and goes to the point in my previous post about potential risk due to lack of diversification. Had the advisor been wrong about the health and viability of that comoany, then this could have been a cautionary anecdote instead.

A well diversified portfolio is essential to mitigating risk.

Yes, and no.

There are many factors. Some assume that the non pro investor will gravitate towards the high fliers, the popular hot stocks of the day. Others get their investment advice from magazine articles, like “Ten stocks you will want to own in the coming decade”. Most advisers are salesmen, not analysts, and have little or no understanding of financial statements, and have little or no idea how to value the finances of a particular company. They are anxious to sell what you are buying and have a sales pitch that will resonate with your goals, and theirs.

I related this story to illustrate the potential of dividend reinvestment, not as the complete guide to securities investment. As it happened, when the ML salesman called, little brother was finishing up a masters degree in accounting, becoming a CPA and going to work for one of the bigs. Financial statements are peculiarly fascinating to those guys, and I suspect his choice was based on a fairly knowledgeable review of financial statements in the light of fairly conservative standards, low to no debt, historic profitability, good margins and return on capital, and dividend record. It was cheap, too. It also was not the only investment, just the one that has endured the longest.

Risk comes from not knowing what you are doing, as Warren Buffett points out. Even so, it is rare to go very long in this activity without a mistake. The future doesn't always work out the way you hope or expect. Some diversification is prudent, but when you have a good opportunity, you have to jump on it. As George Soros says, “it takes guts to be a pig.”

If one is unable or unwilling to learn to interpret financial statements, there is very little alternative to diversification and advisors, and hope to chose wisely.

What is your "Time Horizon"? By that I mean, how long before you want the money back. The Stock Market is a good place to make money if you have at least 10 years. Risk is best managed by investing in good quality investments, broad diversification and minimizing the cost of investing.