Taking Part In Drip Investing
Drip investing can help the common investor magnify their returns on dividend stocks. Everyone who is holding onto their stocks for the long term can benefit by checking out this strategy.
We all know what dividend investing is, you simply buy a group of high dividend paying stocks and then hold onto them for the long term. You definitely benefit from the monthly cash flow, but there is a way to increase your return even further.
This powerful way to increase your returns is called drip investing and what it is is simply a dividend reinvestment plan. For example if you made $15 off of dividends in one month, you could choose to spend that $15, or you could have it be automatically reinvested back in the company.
If it is automatically reinvested back into the company then it will be able to multiply and grow into even more dividend producing securities.
Just to give you an idea of how this technique can work so well when compared to simply buying and holding here is one example. Let us say that you want to invest $1,000 into a stock. The stock pays out a 5% dividend and has an average return of 10% which is around the yearly average stock market return.
If you buy the stock without drip investing it you would have somewhere around $2,963 after 10 years. Also remember that some of that would be from dividends you would have recieved, so you may have already spent some of the money and would actually have a little bit less.
On the other hand had you bought the same stock with the same $1,000 and decided to use a drip investing on your investment you would have $4,045after those same 10 years, and because you haven’t spent any money that would be the full amount in your account.
So if you do not need or want the extra cash flow this strategy can drastically increase your long term gain on your investment.
Tags: drip investing, what is drip investing
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