04-28-2015, 06:39 PM
(04-28-2015, 04:17 PM)stewardinlife Wrote: rapidacid -- Thanks for the feedback ! I am going with Tradeking. As to accumulate cash or DRIP, would DRIP be beneficial, as I understand it is auto-reinvesting the dividends right?
Yea, DRIP means Dividend Reinvesting Plan. Looks like Tradeking is $4.95 a trade which is pretty great, but I'd still go with DRIP which just tells your brokerage "any dividends that are to be paid to me I want the cash to go towards the purchase of new shares, even if they're incremental". There's no $4.95 a trade with DRIP so you're "saving" money on new purchases
If you were to allot your initial $3K to a portfolio that yielded 3.5% you'd "only" get $105 a year in dividend payments and if you waited and accumulated that cash and then made one purchase at the end of the year you'd end up paying $4.95 / $105 = 4.7% in transaction fees ... which is a lot like going to the ATM and it costing you $63 to withdraw $60 of your own money
A good rule of thumb is to try to only pay 0.5 - 1.0% in transaction fees per trade so you get more bang for your hard earned buck ... At $1,000 a month in new money you plan on allocating ( which is really great ) you're looking right at a 0.495% transaction fee ...
If you were to stay disciplined and deposit $1,000 into your brokerage account every month and only make 1 purchase / month for the whole $1,000 I think you'd have a very strong protocol in place
(04-28-2015, 04:17 PM)stewardinlife Wrote: Based on the understanding that I may not need cash right away for at least 15 yrs. or so.
The main talking point of DRIP vs No DRIP is that if you DRIP you may not always be buying at valuations you normally would, like KO at a P/E of 50X. If you don't DRIP and you just accumulate the cash you can always allocate the accumulation in your best idea at the time of allocation.
The downside of No DRIP is that it may take you ~12 months to accumulate enough dividend cash to make a sensible purchase in the 0.5% - 1% transaction fee range, and during that 12 months your accumulating cash is sitting around not being put to use and losing value to inflation ... until you're accumulating $500 or so a month in dividends I think it makes the most sense to DRIP