Story Comments

Traditional DRIPs (buying directly from the underlying company) are OK but you can basically do DRIP investing through most brokerage accounts, such as Fidelity. You can't buy new shares for free but your dividends will be reinvested in new shares without charge and most brokers will also create partial shares.

For more details and a list of brokers that support DRIPs, check out this article: http://onlinebrokerreview.blogspot.com/2009/10/dividend-reinvestment-plans-drips.html

Your answer to the question about DRIPs was way off base! You say that they made sense when brokerage commissions were high and then cite the example of buying 100 shares of Exxon for a $10 trade. When did $10 become less than ZERO?? Even worse, you seem to be missing the point entirely. DRIPs are ideal for someone that has $25, $50, or $100 to invest. Buying 100 shares of XOM would cost $9-10,000 and represent a LARGE commitment to one stock. For teh same cost, a person could invest in 10, 20, or more companies, and do so on a regular (dollar-cost averaging) or irregular basis. Instead, you advise people to invest blindly in mutual funds...and forget about thinking for themselves.

DRIP investing is outmoded at best. The records keeping and IRS reporting are onerous and time consuming. I started with DRIPs when brokerage fees were high. I spent untold hours maintaining records and working on my income tax returns just to report many simple small transactions. Today's low-fee brokerages are a god-send and the transaction is made when I want to buy or sell. The article is right on point.

DRIPS are good. I do not understand all the noise made about a plan's costs if they are reasonable. I know of at least three individuals who started DRIPs at an early age and I am told that they are now millionaires. How much money does one need once you reach this goal?

Before thinking about skipping Drips, I would highly recommend reading Jeremy Siegel`s book 'The Future for Investors' and Derek Foster`s new book 'The Lazy Investor'. These two books show persuasively, with numbers, that DRIP programs are actually some of the most effective, worry free long term investing strategies out there for high returns in both bull and bear markets.

elihuiv - Dividends reinvested in DRIPs are NOT tax-deferred until the stock is sold. The dividends are taxable income in the year in which they are paid to you. They are then immediately reinvested in that stock, giving you even more shares of the stock. All of this is done automatically, which is the biggest upside for most of us --- we don't have to think about it or do anything. But you are wrong in what you said. I hold several DRIPs, and the only down side to me is that there are a large number of transactions (usually 4 per year plus any additional buys and sells through the years) to keep track of. But Quicken does that for me.

I use DRIPS to avoid taxes. In taxable accounts I understand that DRIPS make the income from dividends not taxable until the stock is sold. This is a huge advantage for taxable accounts. I'm a small investor who uses a brokerage for my taxable accounts and an online group for about $1000 per month in additional investing.

I think 'Skip the Drips' misses an important benefit. For many of even the most organized people, dividends sit at what lately are lower and lower brokerage interest rates - if they are even swept to the interest bearing account in the first place.
The compounding effect of steady investment in a quality stock is enhanced/assured by the DRIP which often means the $$ gets invested instead of allowed to lie fallow or to eventually be used to 'buy something' just because it is there. I always thought one of the great benefit of DRIPS was that, in a couple of my accounts, I could keep investing regularly with dollar amounts that seem to trivial to invest regularly otherwise.
In short, DRIPS are not just for avoiding cost, but also to ensure compounding and regular investment, something I find many investors have hard time ensuring. For the record, I am private investor and do not now nor have I ever worked in the brokerage/financial industry.

Growin$$

Some mutual funds have an overall minimum of only $250.00. Additionally. at least one fund family, T. Rowe Price, lets you get started with automatic contributions of only $50.00 per month.