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DRIP Investing

By Edited Aug 5, 2016 0 0

What is it?

DRIP Investing is just a fancy term for allowing your dividends within a corporate or personal investment plan to reinvest into stock.  It stands for Dividend Reinvestment Plan.  For example, if you purchased stock in Detroit Energy Company (DTE) - you will receive a dividend every quarter.  Depending on the size of the dividend you receive every quarter, you may decide to keep the cash in your pocket or (in order to avoid taxes) you decide to use the dividend to buy additional stock in DTE.

That's pretty much it!  Is having a DRIP a good strategy?  Depends! 

GOOD Strategy - DRIP is a good strategy because it allows you to use profits to buy additional stock and defer tax payment until a later date ("kicking the can down the road" is the political saying

Smile
).  Over time your reinvested dividends will help you to build up a sizeable amount for your retirement.  Trust me, any extra help in receiving additional income in your portfolio nowadays is ideal!

BAD Strategy - DRIP is a bad strategy because you could be receiving some additional income today from the money you already have invested.  And if the stock were to lose value or the stock market in general were to decline - you'd lose all the money and dividends that you have invested.  Sometimes it feels good just to have the money NOW rather than LATER.  Tomorrow isn't promised!

Think of a DRIP as your portfolio's way of fighting inflation on its own!  The dollar's value is constantly decreasing and the cost of living is constantly increasing.  This inverse relationship is driving inflation up and forcing us to fight for more raises/promotions at our jobs just so that we can keep up with the standard cost of living.  American worker wages have not kept up with the rate of inflation in a long time.  Just take a close look at the constant increase in gas prices, food, healthcare, college tuition, etc.  

So while we're constantly seeking an increase in pay - give yourself a boost by allowing your portfolio to contribute to your well-being as well.

BE FREE

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