We usually don’t talk about something as risky as stock investing in our blog, but you know that once you build a proper emergency savings fund (15 to 18 months of expenses in savings - money market savings account for 6 months of the expenses/savings and the rest in certificates of deposit), you will want to look beyond the horizon to true investing. Even at that level, we recommend mutual funds through someone like Vanguard (because we hate fees that suck the life out of your returns). However, there is another option once you have secured your emergency savings fund, maxed out your 401k and started regularly investing in your own Roth or individual IRA. That option is called a DRIP (dividend reinvestment plan). DRIPS are offered as an investment option by companies. They allow the shareholders to take advantage of purchasing additional stock directly thru the company.

Building and maintaining a good stock portfolio can be intimidating at first. However, you can do what we always recommend. You know that all stocks can go up and down, and you know that all stocks can lose money. If you don’t know that, let me say it again “ALL STOCKS CAN LOSE MONEY.”

What do we recommend? Read up on the subject. Educate yourself. Then, be selective about companies that you purchase. Do your own research. You probably don’t want to own a bunch of different companies. Remember – this is buy and hold long-term investing with DRIPS. This is not quick money. This isn’t even money or investment you can count on. That is why we don’t recommend it until you have secured the proper emergency savings fund, regularly max out your 401k and have had a history of regularly investing in your Roth or individual IRA for several years.

What To Do, What To Do

First, you must be an actual investor in the company (you must own stock). So, step number one is to purchase a couple of shares of the individual company you want to focus on for your DRIP. If you don’t, the DRIP can help you get stock and establish a pattern of investing in this stock regularly.

Make sure you can dedicate $50 or $100 a month to the purchase of your DRIP (per company). Again – this is money you could lose. It is a long-term investment strategy. You can set up your DRIPs so that the amount is taken directly out of your checking account each month on a specific date by debit.

Choose the company or companies you want to invest in carefully. Remember – a DRIP is a long-term commitment. You can judge by what is hot in the market. Drip investing is for regular investing in companies you really, really believe in. That is why you want to take your time in considering which company or companies to invest in with this strategy.

We recommend you try to focus on companies with strong brands and low debt. Companies that are aggressively expanding over a long-term period can also be a positive (as long as you check their debt against the debt carried by their competition to make sure they are solid players with low debt in their industry).

We also like higher dividends (as long as the company has lower debt vs. others in their industry and higher profit margins. We also recommend that you look for companies that have a history of boosting their dividends over time.

If you do your homework and are secure with your emergency savings and retirement (401k and Roth or individual IRA), you should never look at your DRIP investing as short-term. In fact, we tell people that DRIPs represent an investment opportunity that is best judged over time (like all investments). People who expect quick profit are surely to be disappointed. Invest in DRIPs only if you are ready to go long-term and NOT be discouraged by market short-term fluctuations.

As with all investments, learn. Make sure you know how the dividend is performing. Track performance over time.

Think about what your investing goals are before you decide to invest in anything. Make sure you understand what you are investing in and know that you can lose money investing. Especially in the short-term. We do not recommend DRIPs to people who have not secured the proper emergency savings fund. If you have not read about this go to the top of this blog and read what we are saying. There is a right way to do things and a wrong way. When you invest, you want to be doing the right things or you will BURN YOURSELF. If you don’t feel confident investing in individual stocks, there is NOTHING wrong with talking to Vanguard or one of the mutual fund companies and beginning regular automatic investing that way. The goal here is to regularly purchase assets. If you do that and keep your debt and expenses low, you will grow WEALTH. Period.

You know we believe in long-term investing. Pushing money from checking (*A money laundering account for other people’s money) to savings and from savings to purchasing assets. Assets – by our definition – always produce more assets. Focus on this, keeping debt low, always moving money out of checking and into savings/investing, and steady investment (regular automatic investments), and you will grow wealth.

For more tips on saving, get our FREE monthly e-saver @ www.stickyasset.com/blog. Look for the e-mail sign up window. If you want the e-book “How To Survive Any Financial Crisis,” you can get that in about three (3) minutes and two (2) clicks of your mouse at www.middleclassmoney.com. The e-book is only $4.95 and will save you thousands along with giving you tricks to save and invest regularly.

You also have the option of joining our Facebook group Live The Lifestyle Your Family Deserves™. It’s free and a great way to mingle with people who want to save and invest for the future.

You can do this! Good luck.

Loyd Ford
www.stickyasset.com/blog