DRIP vs. DRIP

When I first chose to enter the world of investing. It all seemed very overwhelming to me. One thing I did know is that I wasn’t starting out with a lot of money so I had to learn how to not only invest wisely but how to invest cheaply also.

Like most people, this led me to looking at DRIP’s. Now if you don’t know what a DRIP is, it stands for Dividend ReInvestment Plan. Which means that when a company pays you a dividend, it just reinvests your dividend into more shares of the company. This is a great way to start building wealth. As you are paid more dividends, they will continue to compound and assist you in growing your wealth.

Now when I first decided that I wanted to participate in a DRIP, I was led to Computershare. Computershare is a transfer agent that allows you to buy shares of a certain company, directly from that company at little or no cost….. or so it seemed.

Here I will use Johnson and Johnson as an example. There is a minimum investment of $0 with no fees to buy. When you decide to sell though you will be hit with either a market order sale fee ($25) or a batch order sale fee ($15) plus they charge you $0.12 per share. This all seemed very expensive to me so I decided to research further.

Something else that wasn’t too impressive to me was the fact that when you do buy stock from Computershare, it isn’t placed as an order that day. The order could be placed anytime within the next 25 days after placing the order. Now I realize that trying to time the market perfect is just plain crazy but you can get better deals by having some control over when your order is placed, especially if you have the ability to place a limit order.

Now with these several negatives I decided to look forward and to see if there weren’t better offers out there. Next I found out that there is an option to purchase shares through your broker and then to setup a DRIP. This option also has some good and bad points about it. One of the bad points is that every time you purchase more shares you will have to pay the trade commission fees to your broker and when you go to sell you will have to pay a trade commission fee to sell all of your shares. The good point though is that you are able to control when your order is placed.

For me I like having the ability to place a limit order on the market and to know that it will probably be filled that day. It makes me feel like I have more control over what is happening with my money. So I chose to open an account up at Tradeking and to setup my DRIPs there. At only $4.95 a trade and free DRIPs, I feel like it is a no brainer right now with my current investing strategy. I know that other people may have chosen different strategies and I would love to hear about them in the comments below!