Mac Mcleod
United States
houston
Texas
flag msg tools
Avatar
mbmbmbmbmb
My daughter is considering using a DRIP.

I can't find anything on the web that shows the performance of DRIPS after considering their setup fees (which are huge).

She's going to take $500 and invest it.

So $500-$190 = $310 to invest in 3 drip stocks recommended to her by her ant (XOM being one).

Vs..
Roth IRA in a discount broker account.
$500 - $21 = $479 to invest in the same stocks.

Going forward tho...
DRIP buys fractional shares so money is always in play. DRIP has no commissions going forward.

Discount broker the cash sits there until there is enough to buy a full share (at a $7 over heard).

I found one graph showing outperformance by DRIP but it was clear it was ignoring the setup fee ($100 + $30 per stock).

Any advice, pointers, performance history?

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Scott Russell
United States
Clarkston
Michigan
flag msg tools
badge
Avatar
mbmbmbmbmb
maxo-texas wrote:

Roth IRA in a discount broker account.
$500 - $21 = $579 to invest in the same stocks.




How many times can I do this deal? laugh

Is it a flat $190 no matter what the initial investment? If so, I'd wait until she had more than $500 to invest! (or borrow some from dad.)

If it's a percentage, run far, far away. That just sounds terrible.



(I've been spoiled because I've always had a 401k/retirement program where there are no fees to move money around and reinvest, so take that advice for what it's worth.)
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Mac Mcleod
United States
houston
Texas
flag msg tools
Avatar
mbmbmbmbmb
qzhdad wrote:
maxo-texas wrote:

Roth IRA in a discount broker account.
$500 - $21 = $579 to invest in the same stocks.




How many times can I do this deal? laugh

Is it a flat $190 no matter what the initial investment? If so, I'd wait until she had more than $500 to invest! (or borrow some from dad.)

If it's a percentage, run far, far away. That just sounds terrible.



(I've been spoiled because I've always had a 401k/retirement program where there are no fees to move money around and reinvest, so take that advice for what it's worth.)


I fixed it the error- lol. She's participating in a 401k at work. This is risk capital. The idea is she'll toss $50 a month in at first and then raise that to $100 a month in the future.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
J.D. Hall
United States
Oklahoma
flag msg tools
maxo-texas wrote:
$500 - $21 = $579 to invest in the same stocks.


Texas math laugh

I researched these a few years ago when I said goodbye to my first career and went in search of my second career. Frankly, I am rather confused about it -- it seems a like a lot of contortions to possibly make more money. And I don't know anyone with a DRIPS account,

To me it just seems a little fishy, and that high intro fee worries me. My broker charges reasonable fees, but he's been working my accounts for 20+ years and he knows he's got me on the hook for steady income. I also have a worry about the $500 initial investment -- a couple of rough weeks in the market and her investment could go "poof."

Of course, I'm an old fart and cautious when it comes to my children's investments and mine moreso. Take it with a grain of salt, but I'd be among the anti-DRIPPERS.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Mac Mcleod
United States
houston
Texas
flag msg tools
Avatar
mbmbmbmbmb
Her initial 3 positions seemed diversified but the larger risk is an single stock can fail and/or cut their dividends- even old companies like IBM.

 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Scott Russell
United States
Clarkston
Michigan
flag msg tools
badge
Avatar
mbmbmbmbmb
I don't know if it's a widely available option, but back in the dark ages I bought some GM stock and they had an option to reinvest the dividends for me. If she is just looking for the reinvestment option, maybe choose companies that will do that and use a cheap broker for transactions.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Christopher Seguin
United States
Cleveland
Ohio
flag msg tools
badge
Avatar
mbmbmbmbmb
As a caveat, I am not giving or providing any professional investment advice. Please consult a properly licensed investment adviser before considering investing in any public or privately traded markets.

Why not have her set up an account with Computershare? Their fees have to be lower than the $190 on a $500 initial investment, and I don't think they charge very much for the DRIP function on an account.

For example, if I wanted to start purchasing Deere & Co stock, my initial investment is $500, my minimum future investment is $100, and the one-time set up fee is $7.50. My DRIP fee would be 5% of what I purchase, capped at $3 each time (which would be $12 per year in fees, since Deere & Co issues quarterly dividends).

Ford is $10 for set up, $50 minimum automatic reinvestment, and the DRIP is 5% capped at $5 per reinvestment.

Many companies offer DRIPs through Computershare - not sure what kind of investments she is looking for, but I am sure there are cheaper alternatives than a $190 start-up fee for a $500 initial set up.

Of course, the other option, as proposed by someone else, is to wait until her initial investment is larger so that the flat $190 is a significantly lower percentage of her overall starting investment.

Just some ideas. Good luck to her.
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Walt
United States
Orange County
California
flag msg tools
Before terraforming Mars, Surviving Mars is required: Paradox Interactive; Steam.
badge
Please contact me about board gaming in Orange County.
Avatar
mbmbmbmbmb
I've never used a DRIP, though I've thought about it. I think the fees you're quoting are something of a rip-off. Some companies (whose stock you're buying) will set up DRIP for nothing--it provides a stream of continuous investment--but you have to deal with the company itself, which may make wrapping it in a 401k or IRA impossible.

I think 401k plans are set up by the company you work for, so if they can take fees out, they benefit. They choose the investment plans that benefit them. Also, when you change jobs, you've got paperwork to do to transfer the 401k right when everything else is happening.

An IRA is just handled by a conventional broker. Scottrade (at least) has what they call a FRIP (F=Flexible): basically you name a target stock and all your dividends go toward buying whole shares of that stock, no fees. DRIP or FRIP, cost basis can be a bitch; I tend to like to see dividends accumulating, though I realize it's a little inefficient.

All things being equal, like employer matching funds, I'd go with the IRA.
___

As to what to invest in, I think an S&P500 ETF like VOO or SPY is best for a naive investor. I invest in individual stocks, but only in rare cases with a very small proportion of my money, most recently DIS. An S&P 500 mutual fund will also automatically reinvest; the question is the expense ratio vs. VOO--but maybe a Vanguard fund? (Hm: VOO [ETF], 0.05% expense; VFINX, 0.17% expense, $3000 minimum investment; VFIAX, 0.05%, $10,000 minimum--maybe start with VOO and trade up?)

Especially if you invest in the S&P500, investing in XOM is redundant and probably overweight oil. Iran oil will come onto the market soon, Russian oil will be back, a huge amount of shale has been written down and is just waiting for oil prices to creep up or costs to creep down, and PV is about to undercut everything. A trade on XOM might work now, but I don't see it as a good buy and hold investment.
___

I'd suggest your daughter do everything short of going into debt to put as much money away as early as possible. The earlier you save the greater the results. And the way to accumulate money, and therefore never have to worry about it, is fundamental: spend less than you earn. Once you get into that habit, it takes a catastrophe before you need to worry about money.

(I know you know this, Mac, but in case your daughter wants to hear it from someone else.)
 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
John Hathorn
United States
San Antonio
Texas
flag msg tools
badge
Avatar
mbmbmbmbmb
I have brokerage accounts with eTrade and USAA. Both offer me dividend reinvestment at no additional charge.

I'd tell her to keep looking.
2 
 Thumb up
 tip
 Hide
  • [+] Dice rolls
Front Page | Welcome | Contact | Privacy Policy | Terms of Service | Advertise | Support BGG | Feeds RSS
Geekdo, BoardGameGeek, the Geekdo logo, and the BoardGameGeek logo are trademarks of BoardGameGeek, LLC.