Young, Green investor. Questions abound.

[Divaddendum]

Hey All!

I actually was introduced to dividend investing via Motley fool when I was around 16-17, then totally forgot about it (doh!) now I'm 23, not much cash to invest, and found this forum through Dividend Mantra. I also bought the dividend toolkit and am making a checklist SOP that will help me evaluate stocks.

I have a Roth IRA and brokerage with Schwab.


I have an initial question with Dollar Cost Averaging. When someone says they will DCA a stock and gradually open up a position, what exactly does that entail?

Is DCA referring to adding money to the Roth IRA/brokerage account or investing in a specific stock?

The reason I ask is because Schwab doesn't allow for fractional share buying, and if DCA is simply investing every month the same amount of money, isn't fractional share buying mandatory in that regard?

Looking forward to looking through DGF!

Oh and for you broke twenty something investors: If you have a NYPL library card, you can get access to Morningstar's Investment Research Center for free! If you're not in NYC, I'd check your local library. Cheers!

[benjamen]

What dividend toolkit did you buy? What does it do for you?

Dollar cost averaging is basically buying X dollars worth of a stock periodically.
http://www.investopedia.com/terms/d/doll...raging.asp

[Divaddendum]

(08-21-2015, 01:41 PM)benjamen Wrote: What dividend toolkit did you buy? What does it do for you?

Dollar cost averaging is basically buying X dollars worth of a stock periodically.
http://www.investopedia.com/terms/d/doll...raging.asp

Thanks for the response benjamen.

Sorry I should be more specific. I bought Dividendmonk.com's PDF that has a handy spreadsheet that does the DDM & DCF calculations.

Right, and to stick to that dollar amount, wouldn't fractional shares be necessary? For example, if I plan to DCA $50 every month into a stock, if the stock costs more than $50 and I can't fractionally purchase it, what would someone do then?

[benjamen]

In order to minimize transaction costs, most people spend at least $1,000 per purchase. A rule of thumb you will see a lot is to spend less than 0.5% on transaction costs. For example, if your broker charges you $5 per trade, then you should spend at least (5/0.005)=1000 dollars. You can spend less at places like motiff that have no purchase costs, but this will lead to fractional shares.

[Divaddendum]

(08-21-2015, 01:56 PM)benjamen Wrote: In order to minimize transaction costs, most people spend at least $1,000 per purchase. A rule of thumb you will see a lot is to spend less than 0.5% on transaction costs. For example, if your broker charges you $5 per trade, then you should spend at least (5/0.005)=1000 dollars. You can spend less at places like motiff that have no purchase costs, but this will lead to fractional share prices.

Ah okay I see. Thanks benjamen!

[ChadR]

I use Loyal3 and E*Trade. Loyal3 allows you to buy in fractional shares and there are no costs for buying or selling. With E*Trade, I have to buy in whole share amounts, but I reinvest all my dividends. Dividend reinvestment is in fractional shares.

[Kerim]

Welcome to the forum, Divaddendum!

I've never dripped directly with a company, but I thought that I read that some of them allow small transactions with no fees.

[Divaddendum]

(08-21-2015, 02:06 PM)ChadR Wrote: I use Loyal3 and E*Trade. Loyal3 allows you to buy in fractional shares and there are no costs for buying or selling. With E*Trade, I have to buy in whole share amounts, but I reinvest all my dividends. Dividend reinvestment is in fractional shares.

ahh I see. I was looking into Loyal3 and also robinhood. I have a few companies I want to invest who are with Loyal3. thanks Chad

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(08-21-2015, 02:12 PM)Kerim Wrote: Welcome to the forum, Divaddendum!

I've never dripped directly with a company, but I thought that I read that some of them allow small transactions with no fees.

Thanks glad to be here!

Ah yeah like computershare has Direct stock plan purchases. Some of them have minimums now though that it would make more sense to just use a broker.

[kayboy]

(08-21-2015, 01:46 PM)Divaddendum Wrote: [quote='benjamen' pid='8422' dateline='1440182487']

Right, and to stick to that dollar amount, wouldn't fractional shares be necessary? For example, if I plan to DCA $50 every month into a stock, if the stock costs more than $50 and I can't fractionally purchase it, what would someone do then?

If you are looking at a particular stock, you can go to the company's website and see if they offer a "Direct Investment" plan. You make a minimum initial investment and then set-up monthly withdrawals from your bank account. Partial shares are no problem and you can automatically re-invest dividends. Wells Fargo has a bunch of companies to choose from at https://www.shareowneronline.com/UserMan...Index.aspx
I'm sure there are others.
Beware of expenses, read the Prospectus carefully.
I set one up to invest in BMY , just for the heck of it. What I like about it, is I never look at it. I have no clue how much cash is in there unless I look at the occasional email.

[Dividend Watcher]

Divaddendum, welcome to DGF.

Dollar cost averaging (DCA) is investing a certain amount of money at regular intervals. Just depositing the money into your brokerage account doesn't count as DCA, strictly speaking. The interval can be whatever you want it to be as long as it is regular.

Out in the real world, many would say that just investing at different price points would be DCA. Reinvesting dividends is also considered DCA.

I wouldn't be concerned about fractional shares. If you only have $500 to invest and the stock is priced at $51.23, then you're only going to be able to buy 9 shares (fractional shares do not trade on the exchanges, it's a book entry at the brokerage). At the next interval, the price could be down to $44.83, then you'll be able to buy 11 shares. Over time, the average price per share should be lower than if you bought it all at once.

You can get fractional shares at Loyal3 and also with most brokerages that allow you to reinvest dividends because the brokerage aggregates the money from all accounts for that security, buys as many shares as they can and then divides it proportionally.

Benjamen's advice about minimizing transaction costs is good but I see no reason to limit it to 0.5%. If you're only able to save $50/month, I have no problem with buying at the $500 level (a 2% transaction cost) at the 10 month point. My rule of thumb is to have the commission covered by the dividends you'll receive from those shares on the first two dividend payments at most. If you're truly a long-term investor, the initial transaction fee will be minimal compared to the dividends you'll receive over the lifetime of your investment.