For many individuals, a portfolio of companies that offer direct investment plans, DRPs, is the solution to their natural reluctance to jump into the stock market at any given time. That’s because you never know when it’s the right time. As a DRP investor, you start with single shares of stock of companies in a wide variety of industries and put money into each company on a periodic basis. Just as you have a schedule for paying your home mortgage, your phone company, your electric utility, you pay your stock accounts. Investment amounts can be as little as $10 or $25 or as much as $10,000, or more.
By following this strategy, you give up the chance of making a point or two on a day trade. But, over the long-term, you will have accumulated assets at favorable prices. Staying in the market–even through sharp market decline–is more than made up for by being in the stock or the market during the advances. It is very difficult to stay in the market during sharp market declines.
This strategy offers another valuable advantage. DRP investors who buy shares on a periodic basis (dollar-cost averaging) will be buying even at times when everyone else is selling. What’s more, they will be buying more shares when prices are low and fewer shares when they are high.
Why not follow this strategy through a brokerage account? It’s the rare investor who will use a brokerage account to make hundreds of small investments in each of 20 or more companies over a period of years. Instead they generally opt for a mutual fund. Investors who follow the DRP strategy are likely to stay in the market through its up’s and down’s.
Actually, the problem may be that it’s just too easy to buy and sell through a brokerage account.