DRIP investing stands for Direct Reinvestment Plan investing. This is a method of investing in shares than involves your dividends being reinvested into buying more shares. It works like this: A company that offers drip investing will give you a way to buy stock from the company. You could buy a small or large amount. Then, on a regular basis, perhaps every month, the dividends that you are owed from the company will be used to buy more shares from the company. This means you share in the company will grow and grow.
Different companies will offer different reinvestment options if you decide to do DRiP investing with them. You may have an option to reinvest only a portion or percentage of your dividends, rather than reinvesting the whole lot.
There are many advantages of DRiP investing. First of all, because companies allow you to buy small amounts of stock, you don’t need a big bank balance to get started. Sometimes you can get into DRiP investing with as little as one share in the company.
Another advantage is that DRiP investing takes care of the investment process for you, to some degree. This is because of the automatic reinvestment scheme. You don’t have to tell anyone to invest your dividends in more shares. This is all taken care of for you.
In some cases you can even do DRiP investing without having to pay fees that you would normally have to pay if you were to invest in the company’s shares.
Lastly, you should always remember that investing money should be seen as a long-term strategy rather than a get rich quick scheme. And DRiP investing implicitly encourages you to take that long-term outlook. With DRiP investing, it’s not as easy to shift your investments from one company to another, so you are motivated to stick with a good thing over a long period of time. This will pay off in the long run.
