Starting Small in Stock Investments
When we think of people investing in the stock market, we often think of full wallets or flush bank accounts.
But, even someone with $50usd can buy stocks! Quality stocks in major companies.
One way to do this is to invest in DRIPs.
What are DRIPs? DRIPs stands for Dividend Reinvestment Plans.
Those investment plans are set up by major companies.
They allow the purchase of stock directly, without using a broker (some companies require that you own one share before enrolling).
This saves you from paying fees to the middleman/broker.
The aim is to reinvest all the dividends you earn in that company and to invest regularly.
This allows you to enjoy the benefits of compounding and dollar-averaging, and therefore to accumulate shares and value.
They also allow to buy in very small quantities (usually one share, sometimes more).
Some companies only require a $50 initial investment.
How do I get started? There are thousands of US companies offering DRIPs, also known as shareholder investment plans.
You only need to go to their web site and look under headings such as "Investors Corner".
After reviewing their prospectus and informing yourself of all the details such as minimums, fees, dividend payment schedule, follow the instructions to enroll.
What do I need to check in the prospectus? Here is an example, taken from a well-known company:
You only need to buy one share, so your initial minimum investment is $10.
You can, of course, start by buying more, say $100 or $1,000.
This is a weekly schedule, so expect to invest $10 per week (some companies have a monthly schedule).
Regular, automatic investment is a great thing! For one thing, it forces you to invest before you spend the money elsewhere; for another, it allows you to take advantage of dollar cost averaging (another good thing).
Additionally, any dividends earned are automatically used to buy more shares in your name.
This particular company allows foreign investors.
So, what's the catch? Like any investment in the stock market, there is a risk.
You need to choose the company carefully.
While I won't give any specific stock advice, it's generally a sound idea to: 1.
Invest in companies you know.
There is a certain appeal to invest in industries that are exotic to us.
But if you do not understand that industry, how will you know if your chosen company is in big trouble or just hitting a bump on the road? 2.
Look for large, stable, have been around a long time, companies.
This is not about taking a chance in some new genius' venture.
This is about building some long-term capital, week by week, month by month, and compounding your earnings quarter by quarter, year by year.
3.
Lack of diversity.
Most of us have limited funds where it would be impossible to invest in many companies in different industries (that is where mutual funds' strengths are - that's another article and class).
4.
Check the fees (see table below with terms explained)
They also make nice gifts to adults and children.
They are not the only way to start small...
stay tuned for more later!
But, even someone with $50usd can buy stocks! Quality stocks in major companies.
One way to do this is to invest in DRIPs.
What are DRIPs? DRIPs stands for Dividend Reinvestment Plans.
Those investment plans are set up by major companies.
They allow the purchase of stock directly, without using a broker (some companies require that you own one share before enrolling).
This saves you from paying fees to the middleman/broker.
The aim is to reinvest all the dividends you earn in that company and to invest regularly.
This allows you to enjoy the benefits of compounding and dollar-averaging, and therefore to accumulate shares and value.
They also allow to buy in very small quantities (usually one share, sometimes more).
Some companies only require a $50 initial investment.
How do I get started? There are thousands of US companies offering DRIPs, also known as shareholder investment plans.
You only need to go to their web site and look under headings such as "Investors Corner".
After reviewing their prospectus and informing yourself of all the details such as minimums, fees, dividend payment schedule, follow the instructions to enroll.
What do I need to check in the prospectus? Here is an example, taken from a well-known company:
- Minimum Investment $10.
00 - Maximum Investment $10,000.
00 - Minimum Shares to qualify 1
- Investing Schedule Weekly Auto-investment? Yes
- Dividends Pay Dates (Month/Day) 03/12, 06/12, 09/12, 12/12
- Open to foreign investors? Yes
You only need to buy one share, so your initial minimum investment is $10.
You can, of course, start by buying more, say $100 or $1,000.
This is a weekly schedule, so expect to invest $10 per week (some companies have a monthly schedule).
Regular, automatic investment is a great thing! For one thing, it forces you to invest before you spend the money elsewhere; for another, it allows you to take advantage of dollar cost averaging (another good thing).
Additionally, any dividends earned are automatically used to buy more shares in your name.
This particular company allows foreign investors.
So, what's the catch? Like any investment in the stock market, there is a risk.
You need to choose the company carefully.
While I won't give any specific stock advice, it's generally a sound idea to: 1.
Invest in companies you know.
There is a certain appeal to invest in industries that are exotic to us.
But if you do not understand that industry, how will you know if your chosen company is in big trouble or just hitting a bump on the road? 2.
Look for large, stable, have been around a long time, companies.
This is not about taking a chance in some new genius' venture.
This is about building some long-term capital, week by week, month by month, and compounding your earnings quarter by quarter, year by year.
3.
Lack of diversity.
Most of us have limited funds where it would be impossible to invest in many companies in different industries (that is where mutual funds' strengths are - that's another article and class).
4.
Check the fees (see table below with terms explained)
- Investing Fee Is there an initial cost to invest? Many have none.
- Fee for dividend reinvestment Is there a cost for reinvesting your earned dividends? This could add up quickly, especially on a weekly schedule.
Many have none. - Selling Fee Is there a fee to sell your shares? Many charges a flat fee plus a percentage or a flat fee plus a cost per share sold.
Some only charge a fee if you do not hold the stock for a minimum amount of time.
The minimum amount of time is usually short, such as 10 days. - Safekeeping Fee This is often overlooked.
The best companies do not charge anything. - Auto-invest Fee Does the company charge to re-invest your shares?
- Fee for Certificate Most do not charge a fee to issue you a certificate.
- Fee for IRA Some investors do their dividend reinvestment in their IRA, some companies charge extra for that feature.
- Termination Fee Will it cost you to sell out of the program? Most do not charge.
They also make nice gifts to adults and children.
They are not the only way to start small...
stay tuned for more later!