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Author: Colovion Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 42  
Subject: Re: DRIP's then Date: 2/5/2000 1:11 PM
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How would I go about setting up a Drip? Through a broker? is buyandhold the way to go?

Excellent questions!

First off, it's easy to start a DRiP. There are several ways to start a DRiP actually. We'll take a company I currently DRiP as an example of how to do this, Pfizer (PFE).

Pfizer requires that you own at least one share of stock in order to start their DRiP. You can either buy a share from a broker/discount broker and have it registered in your name (have them send you the certificate), or you can use a service like MoneyPaper's Temper of the Times (TOT) service (available at: http://www.moneypaper.com). The advantage to using TOT is that they set up the DRiP for you automatically, so you'd be able to skip the rest of these steps. However, they do charge $20.50 for non-members, so it isn't the cheapest way to go.

Once you have the certificate, you have to contact the company and have a DRiP enrollment form sent to you. Usually they won't do this until you are a shareholder of record (shares in your name), but if they will then you can speed up the process of starting the DRiP. You fill out the form and mail it back in. In a few weeks, you're DRiPing!

It can take up to 3 months to start a DRiP, depending on the method used and the company you are DRiPing. However, this isn't a problem since this is a long term strategy (like decades long).

Now a word about BuyandHold. I personally don't like their service. Why? They charge too much. Using DIS as an example, we see that they require 10 shares to start their plan, the minimum investment is $100 per month (if you choose to invest that month), and they charge $5 + $0.03/share for Optional Cash Payments (OCP's) or $1 to have the money directly deposited from your checking account (Auto invest). Say you used TOT to start the DIS DRiP. You would be charged $20.50 plus the price of 10 shares and a charge of 10% of the share price as a cushion in case the stock rises before the purchase (any unused portion is refundable). I don't know what DIS is trading at now, say it's $50. That would be $20.50 + $500 + $50, for a total of $570.50. I don't know the particulars of setting up a DRiP with BuyandHold, but lets say it costs nothing (being generous).

BuyandHold charges $2.99 per trade (OCP or Auto Invest). So it would be cheaper to OCP DIS using BuyandHold, but almost 3 times more costly to Auto Invest DIS using BuyandHold. Now a rule of thumb is to keep costs down to 2% or less of your investment. So you'd have to send at least $149.50 to BuyandHold to stay at 2% fees. If you OCP'd the DIS DRiP, you'd have to send over $250, how much depends on the share price ($0.03 a share). you'd have to send $100 to Auto Invest, but you'd only pay 1% in fees that way. So the best option is to Auto Invest DIS, not use BuyandHold nor OCP DIS.

Why are fees important? They are compounded just as much as your investment is. Say you spend 10% in fees. That 10% will not grow, will not get you money. Sending 10 trades to BuyandHold costs you $29.90, sending 10 trades to DIS DRiP using Auto Invest costs you $10. Multiply that by how many years you plan to invest. That's HUNDREDS of dollars difference! You WANT that money working for you, not buying the BuyandHold guys a house, car, dog, cat, whatever.

And that's using DIS as an example. Say we use PFE. PFE charges $0 for OCP's, a.k.a. they're free. That's right. You start the plan, and never pay a commission AGAIN! Same with KO, INTC, JNJ, etc. Some of these plans charge you for Autoinvest, some don't. You can look up company plans on http://www.netstockdirect.com.

Hope this helps!

Fool on!

Mike

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