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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: Dividend Reinvestment - A Tax Nightmare? Date: 7/6/2008 11:53 PM
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Keeping accurate records over a period of decades is virtually impossible for normal people.

That's nonsense. I have accurate records of all my stock transactions for almost 20 years. My wife has been DRIPing one stock (Southern Company, SO) since the summer of 1980. She has all the paper records neatly filed away, and I put all the data into a spreadsheet about a dozen years ago. That's 28 years worth of data, with splits and spinoffs all neatly factored into the spreadsheet.

And all it takes is one time of forgetting to enter a quarterly transaction and you have incomplete data.

Well, you don't necessarily have to make an entry every quarter. Most companies send out statements when they reinvest dividends, and the statements are cumulative through the year - that is, the last statement of the year shows all four quarterly DRIP transactions. So you don't keep four pieces of paper per year, just one. And if you're a bit lazy, you can make all your entries from just that last statement. But granted - if you can't find 5 minutes a year to write down some numbers and/or file a piece of paper, then you probably shouldn't DRIP.

DRIPs were an arguable solution for something that was a problem years ago, but isn't anymore. To wit: high brokerage commissions.

I think that commissions are a small part of the attraction of DRIPs to many people. They're a painless way to (slowly) build an investment, sort of like buying savings bonds via payroll deduction. (Ok, DRIPs are painless if you keep good records...) My wife's position in SO has grown about 20-fold (I think) since she started. Not all that spectacular, but still it's now a tidy little sum.

DRIPs clearly aren't for everyone. If you can't (or won't) invest the time to keep good records, then buy mutual funds - they typically supply average cost basis information when you sell. Or go with a full-service broker - they'll be only too glad to track cost basis for you.

Lorenzo
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