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Using Dividend Reinvestment Plan

A long term investor could not afford to miss out on the dividend reinvestment plan.  One of the backbones of a successful long term investment is the dividends reinvestment plan.  It makes sense that one does not miss out.  The dividend reinvestment plan is commonly known as DRIP.

This articles will highlight eight specific steps that a long term investor must know to avoid missing out on the dividend reinvestment plan (DRIP).  Let's get started.

1st Step For Using The Dividends Reinvestment Plan

The first step is to buy and hold a company that pays dividends on quarterly or yearly basis.  If one has been buying and holding financial assets based on the capital gains alone, one is missing out. 

The time has come to combine both the capital gains with a dividend reinvestment plan.  The higher the dividends the better or at least it must be paid on regular basis.

2nd Step For Using Dividend Reinvestment Plan

One must set the dividends reinvestment plan in place.  It means giving instructions to the broker or bank to use all future dividends to buy more shares throughout the investment's term.  Without that, one will be sent a cheque for the dividends.  By setting the plan in place, one has effectively created a money machine that will continue to help the investment portfolio.

The gains can be exponential if one takes into consideration the cumulative dividends, capital gains and the duration of the investment.  Obviously, that success will only depend on the company one has bought, and most importantly at what price one has bought it.

A clever investor who masters the market timing will be adding to prior positions in a timely fashion.

3rd Step For Using Dividend Reinvestment Plan

The third step is to never invest more than twenty percent of the investment fund in one sector if one is using the dividends reinvestment plan.  The markets can become very challenging sometimes, it helps not to be so exposed just because of greed. 

4th Step For Using Dividend Reinvestment Plan

Be ready to close a position if the company ceases to pay dividends for more than a year.  Sometimes, a company may stop paying dividends for a while due to the financials that are a bit under pressure, but will resume doing so because they understand that dividends keep long term investors on board. 

One will notice that a stock can quickly decline as soon a dividend paying company announces that they will not be paying dividends. 

As the stock declines, one may be in the red due to the lack of capital gains or depreciation.  One has been negatively affected, but this time there will be no dividends payment to compensate for that. 

Take it from me, it is not a nice thing, and the long term investors hate that.  There are times when long term investors stay put (more forgiving), but it will depend on the management in place plus how the future looks for that company.

5th Step For Using Dividend Reinvestment Plan

This time, one ought to understand that without the skills to prune and adjust the portfolio, one will be using the dividends reinvestment plan without success. 

What assets should be cut off?  Which assets one should add on? Is it worthy staying put until the end of the term?  What changes are needed to boost or defend the dividend reinvestment strategy? 

Those are some of the questions that will help one to make profitable decisions.  Do not invest as a long term investor who just sits and crosses fingers, nails, hair or toes.  Be a long term investor that manages the portfolio from the get go until the harvest time. 

6th Step For Dividend Reinvestment Plan

A long term investor ought to keep ears on the ground.  Please read more educational investment articles, be updated and informed. 

I like Smart News Android App.  It is simple.  It always helps me to stay connected.  Keep learning all times, and never stop.  No one remains at the same level if one keeps learning.  From the past experiences and mistakes, one can craft a better investment strategy for the future. Keep improving.

7th Step For Dividend Reinvestment Plan

The Dividends reinvestment plan or strategy is a purposeful investment strategy. 

Do you wonder why the bank always ask this question: what are you investing for? 

That is an essential question because an investment strategy without aim or purpose will not go far.  So ask yourself why am I engage in a long term dividends reinvestment plan?  If you have not yet gotten a clear answer to that question, then wait. 

Specialist dividends reinvestment investors are looking for a long term source of income or pay day for their retirement, children higher education fees, buying a dream property or paying off their mortgage. 

Really, there is always a goal behind a dividend reinvestment strategy.  Consequently, long term investors do not only dream about the large gains at the end of their plan, but they learn continuously how a long term investor can make the best of the dividend reinvestment plan (DRIP).

8th Step Of Dividend Reinvestment Plan

Most long term investor that are using the dividends reinvestment strategy are hard working individuals.  Therefore, the last thing they want to do is to pay 25% or more in taxes and brokers fees. 

In UK, long term investors can invest in ISA account (at the time of writing this article) to avoid taxes.  In most country, almost every government tries their best to put in place tax reducing policies to assist long term investors. 

Please use at least the search engines or contact the department of taxes or the department of the ministry of the economy to get an updated insight about how to avoid paying unnecessary taxes. 

Imagine one is paying 25% tax rate for one million dollar portfolio gains; that is 250000.  Those that are in the higher tax bracket of 40% will be paying 400000.

Now you see that those are large sums of money wasted if one did not use the tax exemption options.  Also, do not forget the monthly or yearly brokers fees.  Just Google search for commission free brokers in your country, and select the best that fits your needs. 

Remember that a successful long term investor is before everything a clever manager that boosts values and cuts losses, taxes and fees.  And you too want to gradually master that. 

One may argue and say that is too much.  Alright, take the 1st step and master it.  Do not take the next step if you have not yet conquer the first one.  That is it.  You get it now. 

Just keep improving, join forums that help, increase your education every month and by the time you know, you start seeing clearly to the point of even seeing me through your devices. 

Alright, that one is to make you smile a bit.

Have I forgotten anything?  I hope not, at least those are the essential steps to follow if one wants to build a healthy investment portfolio based on a sound dividend reinvestment plan (DRIP).

Conclusion

The dividend reinvestment plan or DRIP is a must have plan that will add more zest to any long term investment portfolio.  With that strategy alone, one can grow a healthy $1000 investment into hundreds of thousands of dollars withing twenty-five years provided that one bought a growing business in a growing sector at the very early stage at the right price. 

Though it requires more patience and skills, an ordinary investor can begin to use those eight steps that help a dividend reinvestment plan (DRIP). 

Surely, a long term investor that is not using it is missing out.
It also important that one has a clear goal for the long term dividends reinvestment plan.  If not, one is only fooling oneself. 

Are you a long term investor?  Have you used the long term dividends reinvestment plan before?

I hope this article is useful to many especially those who want to take their long term investment strategy to the next level.

If that is the case, feel free to share and bookmark this article today.  Also, please remember to say few good words about us in your favourite investment forums.  I will really appreciate that. 

I wish you the very best in your investing plan.  Until the next time, keep upgrading your investment skills and knowledge.

Happy Investment To All
Please stay tuned because soon I will be adding more investment tips and tricks that work.

This article is written by G. Beaulieu
Founder of Stochastic-MACD.com
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today.