How To Get Started in Commission-Free, Fee-Free Investing

You can invest as little as $25 whenever you want with DRIPs (dividend reinvestment plans) .  Perhaps you have already heard about DRIPs or dividend reinvestment plans. Not all companies offer them, but the ones that do obviously pay dividends and thus will tend to be at least either more stable, less volatile stocks, or at least more dedicated to public transparency, since a dividend payment is a very public way to prove your profits.

I should point you first towards several other posts that I’ve written on this topic:

• What is a DRIP?
• Why You Should First Invest in DRIPs (Dividend Reinvestment Plans)
• Buy Stocks Direct with MoneyPaper’s Guide to Direct Investment Plans
• How To Start A Direct Investment Plan Now
• The Top Ten Canadian DRIPs (Dividend Reinvestment Plans)
• Wealthbuilding in Your Fifties and Sixties: Why DRIPs Work At Any Age
  

Be sure to check these out - I’ve already explained many of the basics in here.  Recently a reader asked me how she could get started investing in these.  And then not too long ago, J.Money from BudgetsAreSexy was thinking about getting into some DRIPs and commenters over there were asking about it too.  Also, I read another comment on The Digerati Life about how a young person could get started investing with little money.  So I thought it would be worthwhile to write another post specifically focusing on this, since I think it is really important to get started investing early (a college money tip you should put into practice as soon as possible).

Step #1 - Open A Brokerage Accoun t

Zecco, Scottrade, TD Waterhouse, BMO InvestorLine, and more.  There are many brokerages.  I recommend a discount broker that is online - where you can place trades yourself, online.  Go with one that has cheap commission fees (you’ll only be paying them once, but it’s still nice to save money), but is known for good service and has a longstanding reputation.  I’d avoid anything that’s just opened up shop in the last year, for example.  Check online for recommendations.

Step #2 - Put Cash Into Your Brokerage Account

You’re going to have to find out how to transfer or deposit money into your new account.  If the brokerage is operated by your banking institution (as many of them are in Canada), you might even be able to link it to your checking account and do the transfer online from within your account.  Now that’s convenient!  I’d try to do that if you can make it work for you.

Step #3 - Research DRIP plans and Figure Out Which One You Want

Not all companies that can be bought through a broker offer DRIPs.  So know beforehand what DRIP it is that you’re looking to set up.   Johnson and Johnson is a great example - so is Pepsi.  Both offer DRIPs.  But DRIP plans are all different.  Some even charge fees.  Those aren’t the ones I’m talking about.  There are plenty that are completely free, and these are the ones you should go after.  Read my post on MoneyPaper’s Guide to get a sense of some of the plans available through U.S. companies.

Step #4 - Buy the Stock Through Your Broker

How many shares should you buy?  This depends on you and how much you can afford to spend.  In order to start a DRIP, usually you only need to buy just one share.  So let’s assume you’re on a tight budget for the purposes of this post.  Of course, if you have more to spare, you might want to leverage the one-time commission into a lower percentage of your total costs, in which case buying more than one share is a good idea too.

Step #5 - Order It In “Certificate Form”

After you wait a few days for the trade to “settle” in your account , you can then move on to the next step, which is ordering a certificate for your stock.  You’ll have to call your broker’s hotline and just ask if you can “have your share of ______ certificated.”  They should know what this refers to.  What you’re doing is taking the share out of its “street form” (when the brokerage owns it) and transferring its ownership under your own name.  So make sure you verify your correct name and address with the person on the phone.  Also, you’ll need money to pay for the certificate, but this will be the last time you’ll ever have to pay any fee to invest in that company.  Expect to wait two weeks for the certificate in the mail .

Step #6 - Enrol in the DRIP

While you’re waiting for your certificate to arrive, you might already receive some information from the company’s registrar agent about enrolling in their DRIP.  Simply fill it out and mail it back in.  You want to make sure that you’re registered for both (1) dividend reinvestment AND (2) optional stock purchases/optional cash payments .  The latter means you’ll be able to buy more stock with no fees.  The former simply refers to the actual reinvestment of future dividends.

Step # 7 - Wait for the Registrar To Set Up Your Account

Enough said.  This can take up to a good month and a half, depending on when you entered the company’s quarter cycle.  Be patient.  Get acquainted with the company’s quarter schedule - when they record shareholders and when they pay dividends.  Plan your future optional cash contributions (aka stock purchases) .

Step #8 - Send a check for the Optional Cash Payment/Stock Purchase

Check the plan for minimum amounts required.  If a company says a $25 minimum is required, it means that if you choose to send in a payment it must be at least $25.  You are not required to send in a payment, ever, at all.  That part’s up to you!

And there you have it.  Those are the basics.  Feel free to ask me if you need any more clarification on the above points.  Like I said, I’ve been doing this almost ten years now, so I’ve forgotten somewhat what it’s like to start from scratch (although I have added to my new DRIP holdings as recently as last year).  I currently own around 20 DRIPs.  This is in addition to my regular stock portfolio, of course!

So let me know what you think. Don’t forget to subscribe to my , and come find me on Twitter .

Related Posts

• Portfolio Update - DOW Crash Causes Firesale on Canadian Bank Stocks
• The Top Ten Canadian DRIPs (Dividend Reinvestment Plans)
• Buy Stocks Direct with MoneyPaper's Guide to Direct Investment Plans
• Companies That Have Laid Off Workers - Update
• My Keys To Financial Success

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Tagged as: dividend reinvestment , DRIPs , investing