| I spent some time on some investment chat rooms | | | | others only quarterly. And they'll do it on a certain |
| last night, and heard a lot of questions by some | | | | date. This means that: |
| younger people (and those with quite a few dollars | | | | (3) You don't have control over the price you pay. |
| to invest) about what they should invest in first. | | | | While you can decide that you'll send in one |
| Some of these people hadn't even begun yet to do | | | | contribution of $100, you have no control over |
| any reading on investments for themselves first, but | | | | whether the stock will be up or down on the day |
| were hoping to get some good quick advice over the | | | | that the company invests for you. Usually this is only |
| internet. In this post I'll give my answer to their | | | | of concern to hyper-market-timers, though. You'll |
| questions. | | | | have a general sense of whether the stock is on sale |
| RRSPs and 401Ks are Not For Everybody | | | | or not. If it's on sale, grab it when it's low. Send a |
| I think the first (and best) thing you should invest in | | | | cheque in for that month. |
| is a small selection (3-5) of dividend reinvestment | | | | (4) Not all companies offer DRIPs. You might still |
| plans (DRIPs). But I'll qualify that a bit: if you're lucky | | | | have to use a broker anyway if you really, really |
| enough to have an RRSP or 401K where your | | | | want to invest in that favourite company of yours - |
| employer matches your contributions, then by all | | | | or in companies that don't pay dividends. |
| means, max that out first. That's free money, as | | | | (5) Some DRIPs actually charge small fees for |
| they say. You might also just have an RRSP or 401K | | | | purchases and reinvestment. This is by far the worst |
| of your own without these extra monetary gifts. | | | | on this list. But my advice is simply not to invest in |
| And if your income is high enough to benefit from | | | | these companies. There are enough DRIPs out there |
| any reductions that contributions to an RRSP/401K | | | | that you can build a good portfolio without having to |
| might bring, then definitely max that out too. | | | | pay for it along the way. |
| I disagree that maxing out your retirement savings | | | | (6) More record keeping than if you held stocks at a |
| plan should be everyone's first investing priority. At | | | | broker. This one bothers some people. But it's not |
| some income levels, you simply don't need to, | | | | that bad. It just means you have to stay on top of |
| because the benefits don't outweigh the benefits | | | | the letters and news announcements that they send |
| you could have from bringing in cash flow through | | | | you (eg., say your company is bought out, and you |
| non-registered investments. When I realized that I | | | | need to mail your certificate back in - you don't want |
| was socking money away into a plan that I couldn't | | | | to miss the deadline). Most of what they send you |
| take advantage of for more than forty years, and | | | | you can ignore (I never vote by proxy, go to |
| that I was currently getting any tax savings or | | | | shareholder meetings, or even read the annual |
| benefits from doing so, I stopped. I didn't stop | | | | reports most of the time - I'll do this in the future |
| investing. I redirected the money elsewhere. If you're | | | | when I have more time). |
| a student, there are better ways to maximize your | | | | Where to Get Started |
| "money energy" for today than by socking it away | | | | How to get started in DRIPs depends on where |
| into hopes for tomorrow. This is especially true if you | | | | you're a citizen. I don't know as much about |
| are going through graduate or professional schools of | | | | "Dripping" in the UK or Australia, so I would love to |
| any sort. | | | | hear from anyone living there about that. If you're in |
| Start "Dripping" Your Way to Wealth | | | | Canada, though, you need to do one of two things: |
| Even if you still wanted to invest for that future | | | | (1) buy your first share from a stockbroker like BMO |
| utopian era of your life called retirement, there are | | | | Investorline or TD Waterhouse. (2) get a friend or |
| arguably better ways to do it than paying annual | | | | someone else who already has shares in the |
| registered savings plan fees, trading commissions, and | | | | company you want to transfer a share over for you |
| mutual fund fees. [Let me pause for a moment and | | | | (after you pay him/her for it, of course!). For |
| qualify this, too: there are brokers where you can | | | | Canadian DRIPs there's also a fairly good online list of |
| hold 401Ks with no annual fee, and there are many | | | | Canadian DRIPs available (but not updated as |
| index funds with super low MERs that you can put in | | | | frequently as we might want) here. If you're in the |
| them, and if your net worth is already above a | | | | US, it's much easier to get started, because there |
| certain amount (like 100,000K) you might not need to | | | | are hundreds of companies with DRIPs (compared to |
| pay any commissions at some brokers at all, or a | | | | Canada's... thirty?) and many companies will let you |
| really low amount like $4.95.] Many people's money is | | | | just purchase directly from them. Some, however, do |
| still stuck in mutual funds where they don't know | | | | require that you first buy a share on your own. In |
| what they're really invested in. (But I'll save my | | | | this case just pick your favourite (cheap!) broker and |
| thoughts on mutual funds for another post). DRIPs, | | | | get the share. |
| on the other hand, will allow you to invest in stocks | | | | If you're buying the share on your own first, you'll |
| with as little as $25 or $50. You can do it monthly | | | | also need to get it "certificated". This is an extra, |
| and slowly build up a dividend-paying portfolio that | | | | one-time cost that you have to put up with. Some |
| distributes money to you on a monthly or quarterly | | | | brokers will charge as little as $20.00 for a certificate |
| basis. Money that you can use NOW. | | | | - that's why I like ENorthern in Canada. The big banks |
| No Commissions and You Only Need $50 | | | | here will charge as much as $52.00 for the same |
| Because DRIPs (dividend reinvestment plans) are | | | | certificate. So when you're checking out brokers, be |
| offered by the company itself, and are managed by | | | | sure to also check their certificate fee - not just their |
| entities known as Transfer Agents, they bypass the | | | | regular trading fee. |
| middleman, the stockbroker of yesteryear. I confess | | | | Either route, you first need to go to the company's |
| that I'm a little surprised whenever I hear anyone | | | | webpage and find out if they offer a DRIP, and if so, |
| actually relying on the services of a stockbroker in | | | | how to enroll in it. They'll tell you who their Transfer |
| any substantial way. This is because of my | | | | Agent is (in Canada, these are CIBC Mellon and |
| do-it-yourself investment style, but also because of | | | | Computershare; in the US, these are Computershare, |
| the vehicles I invest in. I don't try to time the | | | | BNY Mellon, JP Morgan, Wells Fargo, and others) and |
| market, I don't do options, futures and shorts. I don't | | | | where to mail your cheque. But that's about it! It's |
| invest on margin. All of these things will seriously | | | | straightforward from there. The Transfer Agents can |
| complicate your life, as far as I'm concerned. | | | | be thought of as "administrative assistants" or |
| Because DRIPs bypass the middleman, they save on | | | | "secretaries" that do all the bookkeeping and |
| all those commissions. It also means that for many | | | | customer service related to these DRIP plans on |
| DRIPs (at least in the U.S.; in Canada this point is a bit | | | | behalf of the companies. If you drip Pepsi-Cola (PEP), |
| different), you don't even need to use the services | | | | for example, you won't ever be dealing with anyone |
| of a broker at all. You can just buy your shares right | | | | at Pepsi itself. You'll be dealing with their Transfer |
| from the company. Wow. You really have to think | | | | Agent, BNY Mellon, from where you can buy Pepsi |
| about how amazing that is. Perhaps only those who | | | | direct. |
| have already spent years doing the broker thing can | | | | Going With MoneyPaper |
| really appreciate it. | | | | In addition to the above ways of enrolling in DRIPs, |
| Perfect For Young Investors Just Getting Started | | | | you can go with MoneyPaper. They're an independent |
| On top of the fact that you can save a lot of | | | | service that helps people enroll and get their first |
| money, you have the peace of mind knowing that | | | | share, and I hear they're very easy to deal with and |
| you're invested in some slightly more stable, | | | | they do really simplify the process because they do |
| dependable companies (by definition, DRIPs require | | | | the paperwork for you. On the other hand, they're |
| that the company pay out dividends - and while | | | | not a big company and so you can't expect to hear |
| some will argue (sometimes correctly) that this does | | | | back from them on email very quickly. They publish |
| not imply that the company is in a better financial | | | | an annual guide to buying stocks direct. One great |
| situation, historically speaking dividend-paying | | | | book explaining everything you need to know about |
| companies that are able to increase their dividends on | | | | DRIPs is that by George Fisher, All About DRIPs and |
| a yearly basis have great fundamentals, are also | | | | DSPs. (DSPs refer to Direct Stock Purchase plans, |
| good growth stocks (obviously!) and not fly-by-night | | | | which is what you're doing when you buy directly |
| fads or wonder stocks like Nortel once was). | | | | from the company without needing that first share). |
| But because you can invest in DRIPs with as little as | | | | There's a lot more to DRIPs than what I've covered |
| $25, even $10 with some companies, DRIPs are | | | | here so far, but this is enough to get you going. If |
| perfect for kids, teenagers, students, the | | | | you've just been given $5,000 or you've got an |
| self-employed, and other low- or sporadic-income | | | | extra $100 lying around and you've decided it's time |
| groups that might come into some "extra" cash only | | | | to start investing, I thoroughly recommend you |
| once in a while or on an irregular basis. But don't think | | | | become acquainted with DRIPs and get into a basic |
| that DRIPs can't be the backbone of the portfolios | | | | one offered by a company you're familiar with right |
| of the very wealthy or high-income earners. I know | | | | away. As you invest, you can learn more about the |
| the nickname "DRIPs" sounds a bit goofy, but these | | | | DRIP universe along the way. But nothing beats |
| are the real deal. There really isn't any other way to | | | | these gems of the investment world. They're no |
| grow your cash this quickly and efficiently (I'm sure | | | | longer the "best-kept secret," but it's still surprising |
| those with less than legal bents have their own, | | | | we don't hear more about them than we do. Of |
| better ideas, but I'm not interested and I suggest | | | | course, then the brokers wouldn't get their |
| that you shouldn't be either). | | | | commissions anymore. |
| Not Many Downsides | | | | Let's Talk DRIPs! |
| So what's the catch, right? There are a few small | | | | If you want to know more, or you have questions, |
| drawbacks with some DRIPs, but overall they hardly | | | | or you want to tell me all about why you think DRIPs |
| constitute disadvantages to this vehicle across the | | | | are the WORST investment vehicle:), feel free to |
| board. Here are some of them. You'll see that some | | | | email me (my name at hotmail):) What I've written |
| might not even be important for your own situation. | | | | here so far is just the surface of a world unto itself |
| (1) You still have to pay taxes on the dividends and | | | | in many ways. I've been invested in DRIPs for eight |
| capital gains if you sell (but divs are taxed less than | | | | or so years now, and while I'm not a millionaire yet, |
| your employment income!) | | | | that's because I've also been a student for all of that |
| (2) You can only invest on a certain schedule. Some | | | | time, too:) So send me your thoughts and let me |
| companies will take your money on a monthly basis, | | | | know if I can help you out. |