The Small (or large) Investor’s Lower Risk Method of Building Wealth
1. Easy Dollar Cost Averaging—With DRPs, you invest dollar amounts not share amounts. You get as many shares as the amount you invest buys, which is based on the cost of the shares. If you invest the same amount routinely, you will end up having bought more shares when prices were lower and fewer shares when the share prices were higher.
2. You don’t need to open a brokerage account. Your account is held in your name on the company books (not your broker’s name).
3. DRPs Help you Control Emotional Reactions to Market Moves: Fear and Greed account for many mistakes made by investors. People tend to panic and sell when they might be better off buying. DRP investors stay on course to accumulate holding and build wealth.
4. Diversification is Easy and Affordable: You can afford to open accounts in a large number of companies, which will immediately establish a diversified portfolio.
5. You Don’t Need to Save-Up to Invest: With DRPs, investors use risk-reducing strategies to build up holdings over time with small regular investments. Some DRPs accept investments as small as $10 or $25.
6. It’s more efficient to “Save” in Stock Instead of in a Bank: Sure there’s risk of losses in the market, but stock holdings likely will appreciate over the long-term, while bank holdings only earn taxable interest. The growth in value of your stocks will not be taxed until you sell.
7. Investors who make lump-sum investments into their brokerage accounts may buy at the wrong time: Building holdings over time at a variety of price-points reduces that risk.
8. You will be much less likely to attempt to time the market.
9. Diversified, quality-oriented, long-term investors are likely to practice restraint during turbulent markets.
Here’s why those nine critical advantages will contribute to your success:
Diversifying among market sectors is an uncontested risk-reducing strategy. Diversifying holdings within a traditional brokerage account, where you generally buy in 100 share lots, is more limiting than diversifying among DRP companies, where a small dollar amount is all you need to open an account.
The world’s smartest people and most powerful computers have tried to time the market, without much success. The only proven way to time the market is to stay in it. Regardless of how worthy your intentions, it’s too difficult to follow this strategy in a brokerage account.