Drip investing is a strategy for buying shares of stock that pays dividends. Instead of paying the price all at once, you invest a little bit each month into an account that will be used to purchase more shares. The idea is that your initial investment will grow over time because you’ll make money from the dividends collected every quarter. In this post, you’ll review what drip investing is and how does it work? So you can decide if it’s right for you!
What is DRIP investing?
DRIP stands for Dividend Reinvestment Program, and it’s a way to invest in a company’s stock or drip stocks without actually buying the stock itself. Instead, you’re essentially investing in its shares by having the company reinvest dividends on your behalf.
It works this way: The company buys back its own stock, paying you a dividend in return (which can be reinvested). And then, when you get paid out again, that can be used as an investment.
Basically, DRIP investing lets you use dividends to buy more shares of the same company—without ever having to spend any of your own money.
As experts like SoFi have to say, “Investors can sign up for DRIP programs through the public companies themselves, an online brokerage, or take on a do-it-yourself approach and reinvest stock dividends themselves.”
But there are some risks involved with this strategy; read on!
How does DRIP investing work?
DRIP investing is ideal for anyone who likes to invest regularly, but doesn’t have the time or interest in managing their own portfolio. You begin by signing up for a DRIP plan with your brokerage, who will pay for the first 25-100 shares of the company you choose to purchase.
After that, each time you deposit money into your account, they’ll repurchase shares on your behalf and send them directly to you (or deposit them into your bank account).
Benefits of DRIP investing
- It is a smart way to invest in stocks. If you want to invest in the stock market but don’t have much money, DRIP investing is an excellent choice.
- It’s great for small companies and even better for dividend stocks. If you’re looking to buy shares of smaller, more obscure companies that don’t trade on major exchanges like NASDAQ or NYSE, then DRIP investing can be an excellent solution.
- It’s also ideal if you want to invest in dividend-paying stocks—and you all know what dividends are good for!
Setting up a DRIP plan
Setting up a DRIP plan is easy, so long as you’re comfortable with the investment options available to you. If you want to set up a DRIP plan with a brokerage firm or bank, here’s what you need to do:
- Find an account that offers DRIP plans and/or automatic investing options.
- Look closely at their fees and terms of service before signing up for any accounts or services; make sure they fit well with what your goals are for investing in stocks and bonds over time!
- Follow instructions on how to set up any automatic investments into your chosen mutual funds or exchange-traded funds (ETFs).
DRIP investing is a great way to invest in the stock market. It can be done through any stockbroker, but if you want to automate the process, then it’s best to use an online broker. The best part about DRIP investing is that it allows investors to set up recurring investments with no fees and keep their money invested all year round without having to worry about timing or rebalancing their portfolio.