If you are new to investing, I know you don’t know about this yet. However, strangely enough, followers who have been investing for some time don’t know about this trick either. It is a very self-explanatory concept and easy to grasp.
I present to you the (DRIP) Dividend Reinvestment Plan.
A DRIP is a program that any investor can use. This program allows investors to reinvest their cash dividends into buying more shares of that same stock. If the stock price is higher than the dividend received, you can purchase fractional shares of that stock.
It uses a technique called (DCA) Dollar-Cost Averaging. Simply put, it takes all your purchases amounts and prices and averages it out equally.
Let’s see an example.
In the first Quarter of 2022 example, you purchased a total of 21 shares of a stock, and you invested a total of $145. Divide 145/21, and you get an average price of $6.90.
For you to make a profit, you need to know this number. Selling below this dollar-cost average price will guarantee a loss.
Simple enough, right?
So, enrolling in a DRIP helps you automate the process of reinvesting cash dividends. It makes investing a much simpler task. In some cases, cheaper. Best of all, it is done automatically for you—an utterly hands-off system with no emotions involved.
A great benefit that I love, the system itself, will buy more shares when prices go down and fewer shares when prices are up. Over time, it helps you compound your gains. That way, it gives you a better price by dollar-cost averaging down. It is a powerful tool to have.
Understand that DRIPs only work for investments that 1) pay dividends, 2) you will hold for extended periods (yearly/decades). You will often hear the argument of choosing well-established companies, also known as “high quality” and “low risk.”
Don’t forget!
DRIP investing is subject to taxes. Because even though investors do not receive a cash dividend, an actual cash dividend is reinvested. The IRS considers that to be income and therefore taxable.
Note:
We will begin two YouTube channels in 2022. An English as well as a Spanish channel. We will go over all these strategies, and you can learn and implement them for yourself. Stay tuned!
Summary:
– DRIP is a program that reinvests your cash dividend automatically for you.
– It dollar-cost averages the purchases and helps you compound your gains over time.
– Taxes are paid on those dividends, although you didn’t receive the cash on hand
That’s it! Verify with your broker how to set up DRIP investing in your account and watch your account grow.
Now, begin your Road to Wealth!
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