|
|
|
A Guide To Investing
Everyone seems to have their own secret or strategy or trick to making money in the stock market. Here are two strategies that have helped many people.
1. It's your time, how do you want to spend it?
Some people suggest high risk investments...
How to Evaluate Load vs. No Load Mutual Funds
If you have been dealing with mutual funds for any length of time, you undoubtedly have faced the question of which is better: Load Funds or No Load Funds. If you are new to investing, "load" simply refers to the commission paid to the broker...
Investing in the Stock Market
There are several factors an investor in the stock market should consider: 1. All stock purchases should be commission-free. 2. All stocks purchased should be from a company that has a history of raising their dividends every year. 3. The company...
Stock Investing Information ... Small cap stocks, penny stocks & pink sheet stocks
Profitable day traders recognize that trading low priced hot stocks is among the fastest & most effective ways to harvest BIG piles of cash in the stock market. The problem is that if you don't know what stocks to look for and how to approach them...
The Nasty Truth About Mutual Funds Investing
Here are some facts that might make many fund investors question why they have chosen to invest in funds at all. According to John Bogle, former CEO of Vanguard Funds, one of the most trusted authorities on investing in mutual funds and a strong...
|
|
| |
|
|
|
|
|
|
Dividend Reinvestment Plans: Investing On Automatic Pilot
If you're like many investors who squander those small dividend checks from your stock portfolio, a Dividend Reinvestment Plan (DRP) might be just what you need. Just as its name implies, a Dividend Reinvestment Plan allows you to reinvest some or all of those dividends into more stock of the issuing company. Unlike purchases made through traditional means, partial or fractional shares, as well as whole shares, are available.
Technically, there are two types of DRPs. The first type involves buying shares at the market through an outside trustee. Although the company may subsidize the transaction costs, buying shares at a discount is not allowed.
The second type allows you to purchase directly from the issuing company, which may provide a discount from the market price. This is a distinct advantage over buying from an outside trustee.
Besides giving dividends a better purpose than sitting in your pocket or in a brokerage cash account, a DRP may offer other advantages as well. By buying on a regular basis, you are ?dollar cost averaging? your purchases, an investment strategy designed to reduce volatility. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in the price. Of course you should consider your ability to continue purchasing through periods of low price levels. This type of plan does not ensure a profit or protect against loss.
Secondly, many companies offer added options with their DRPs, including purchasing stock at low minimums and sometimes even offering shares at a discount (often 3-5%) off current market prices.
From a tax standpoint, you are subject to income taxes on the value of the dividends whether you reinvest them or not. Your tax basis for all your shares including the reinvested dividends is the amount paid for the original shares plus the dividends, minus any costs deducted from your dividends as a service charge as part of the DRP.
Keeping good records is a necessity, especially if you plan to continue participating in a
DRP over a number of years. Without the records, it may become very difficult to track all your purchases. A little bit of effort now can save you big headaches later on.
Usually, you will receive a quarterly statement outlining your DRP account. Among other things, these quarterly statements will detail your on-going investments, how many shares are held by the program, how many shares are held be you, and the value of all your shares.
Not all companies offer DRP's but, for a list of one's that do, there are many web sites dedicated to these plans. These internet sites not only have a full list of companies with DRPs, they also offers online enrollment services. For securities held in a brokerage or wrap account, check with your brokerage firm to determine if they have the means to enroll you. If all else fails, try either the company itself or its transfer agent.
Although it is easy to see the advantages of DRP programs to the investor, we should not overlook the benefits to the issuing company. Besides helping to stabilize market prices, a DRP is a relatively efficient way to raise capital and, because companies only ?promise? to continue these programs in the future, the issuing company controls when and how much capital will be raised.
Over 1,000 companies currently offer some type of Dividend Reinvestment Plan and, with a little research, you should be able to get on the path of ?automatic pilot? investing for the future.
Copyright 2005. LivingTrustNetwork, LLC. All rights reserved.
About the Author: Glenn (?Chip?) Dahlke, a senior contributor to the Living Trust Network (http://www.livingtrustnetwork.com), has 28 years in the investment business. He is a Registered Representative of Linsco/Private Ledger and a principal with Dahlke Financial Group.
Source: www.isnare.com
|
|
|
|
|
|