Getting an early start saving and investing for your children's, or grandchildren's, future has never been more important. Whether your goal is to save for college or invest a little extra each month to help get your child started saving for retirement, it's never too early to start.
Recent studies have shown that college tuition to a four-year university will total over $300,000 by the time a child born in 2011 graduates. In addition, social safety nets such as social security are likely to look much different by the time a child born in 2011 reaches retirment age.
Fortunately, direct investing with DRIPs is a simple and affordable way to get started saving for that future. Direct investing with DRIPs has several advantages over other types of investment opportunities.
First Share has put together a starter portfolio for children. Each DRIP plan in this portfolio represents a company that we feel will be engaging to children, offer a stable dividend and maintain little-to-no DRIP fees. Click Here to view our DRIP Portfolio for Kids.
Advantages of Investing with DRIPs
Power of Compounding Returns: "Interest on interest" is the best way to explain this concept. With DRIPs, your dividends are reinvested to purchase additional shares. Over time the value of those shares increase without any additional money coming out of your pocket. So, in a sense, you're getting "interest" on your "interest", or in the case of DRIPs, "capital appreciation on your dividends." The earlier you begin, the more shares your dividends will buy over time.
Dollar Cost Averaging: Buying low and selling high is the way to make money in the stock market. Dollar cost averaging is the process of investing a set amount of money in a particular stock at regular intervals. When the price of that stock is high, your investment purchases fewer shares. When the stock price is low, your investment purchases more shares. Dollar cost averaging helps to lower your average purchasing price for a stock and helps to reduce the risk associated with market-timing.
Avoid Commissions & Investing Fees: The best DRIPs have no charges or fees associated with them. Others may charge de minimus fees for the purchase of additional shares or reinvestment of dividends. These fees generally pale in comparison to those charged by brokers. Avoiding excessive fees and commissions leaves more money for you to invest in additional shares of stock which allows you to further benefit from the power of compounding.
Automate Investing: DRIPs help you automate your investing and can help take emotions out of your investing decision. Studies have shown that the average investor tends to sell when stock prices are lower and buy when they are higher. Direct investing with DRIPs can automate your investing decisions and help you to time your investments and not the market.
How First Share Helps
While direct investing with DRIPs has many advantages, most people don't know about DRIPs. Why? Because noone has a vested interest in promoting them. Brokers don't benefit from them and the companies themselves are restricted from marketing them to the public.
While there are companies that will allow non-shareholders to participate in their DRIP programs, most require that participants already be shareholders with at least one share of stock. First Share's program for DRIP investors is the lowest cost method to obtain the first share that you'll need to sign-up for the direct investing plans of many of the top companies.
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