No. of Recommendations: 6
I definitely struggled with this question when I started. I think my final decision came from my fierce independence and refusal to turn my financial future over to high-paid "experts" -- And I thought it would be fun to pick stocks. My final decision was probably based more on emotions than it should have been. But, hey, I'm human. It also made it easier once I decided to put all our retirement accounts into index funds, and approach the drips as something extra for a big purchase 10-20 years from now.

I've been dripping for about a year and half now. I'd do it again. I know it would have been less of a hassle to just go for the Vanguard 500 Index fund. But, for me, it was a time when I was very curious about investing and had the time to learn more. I read about 15 books and hundreds of articles. Now, I'm not saying you have to do that at all. For me, though, it was like creating my own crash course in investing. Now, I figure it only takes about an hour of my time per month and I'm feeling pretty confident. My wife is even learning some of this stuff and helping me with the process. So I plan to continue for many years to come.

Maybe I can give you some parameters to make your decision easier.

1) Are you really interested in learning about individual stocks and the tools used to measure performance? DRP'ing really forced me to learn about PE ratios, EPS, cash flow and all that other stuff. And I knew that I had to pick real stocks based on my own research, instead of just reading about it in a book. There's nothing like the fate of your own cash to compel you to learn! And I'm glad I learned these things. Even if I just match the index, I'd say it was worth it as a learning experience.

2) Are you prepared to MAKE organization a "strong suit"? It sure wasn't mine, and still isn't. But I've learned to compensate and just file everything very carefully, which has been a good self-discipline thing. But it aint rocket science. All it takes is a few manilla file folders.

3) Are you willing to get interested in your companies? It doesn't take much time, but it does take a certain awareness. I see a story in the paper on Intel and I don't brush past it. I read it. I don't track them assiduously, but I do keep abreast of big news and read annual reports.

4) Can you deal with mistakes? As they say, risk and reward go hand in hand. I've made all kinds of mistakes -- Started a drip in a company that I no longer like (so I've stopped adding to it) ... Screwed up a transfer during a stock split, so now I have one orphaned share of Harley Davidson that still lives at Ameritrade ... But, hey, these have all been learning experiences. Presumably, my reward will be increased because I'm taking more risk and I'm saving a bundle on fees, turnover and management costs.

5) Are you familiar with portfolio management? Why not do both Index and DRIP? The Fool doesn't talk about it much, to my knowledge, but I'm a big fan of portfolio management. There's software that will measure risk and reward to tell you the right balance of stock picks and S & P. To oversimplify, most portfolios will have less risk (and sometimes even a higher return) with 50% or more in the S & P, whether it's through exchange traded funds (SPY) or mutual funds. I think of S & P as a kind of stabilizing force on my portfolio. I can adjust that "lever" to suit my needs. If, in the future, I learn something new that changes my mind about drips, I'll just buy more S & P. If I discover I have a real talent for picking stocks and I'm handily beating the indexes, then I might lower my monthly contributions to the index and ramp up the proportion that's in individual stocks. You can learn more in an online booklet I created with Mike Schoeffler of Street Falcon (not a plug for software here...just letting you know about a free info packet that's out there): www.streetfalcon.com.

6) MOST IMPORTANT: Is it fun? It is for me. So I'll keep doing it. Once it's not, I'll stop.

Cheers,
FoolEd
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