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 a given time. They might be wondering is the market too high? Should you wait for a better opportunity? You never know when it’s the right time to invest.
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 own 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.
It’s too easy to buy and sell through a brokerage account.
DRIP investors accumulate assets at favorable prices because they stay in the market through sharp market declines and continue to invest regularly. It is very difficult for many investors 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 their portfolio holdings over a period of years. Instead they generally opt for a mutual fund. We have discovered (over the years that we have provided our services) that investors who follow the DRP strategy are more likely to stay in the market through its up’s and down’s.