DRIP PORTFOLIO

Drip Portfolio Report
Monday, December 29, 1997
by Jeff Fischer (JeffF@fool.com)


ALEXANDRIA, VA (Dec. 29, 1997) -- Every year for decades now Randy Befumo has dressed up in red on Christmas Eve, rented a sleigh, and headed off into the night. We've never known what he was up to, but this year he has yet to return.

That's unfortunate.

First, it was hoped that he'd write this column again beginning today. Second, there's a snowstorm expected in the D.C. area tonight, and being outside in the cold may not be the best thing for him. Let's try to put it out of our minds for now, though, by confronting the coming new year with some facts about compounding savings and some initiatives that Fools can take to be better and more Foolish investors.

First: compounded savings. We began this portfolio with $500, but it could have been started with as little as $100 -- and some people have done just that. To our beginning base we're adding $100 per month, or $1,200 per year. Fools around the world are adding the same amount, or more, or less, depending on their situations. The point is that everyone is saving and investing money regularly, and hopefully in companies that they understand.

Now, $100 per month may not sound like all that much to many people. It's just the equivalent of one or two nice meals out per month. Some Fools have began such modest accounts strictly for their children, socking away $100 per month beginning when the child is less than one year old and hoping to have enough money about two decades later for college. Will they have enough? Let's consider.

Our friendly Foolish fictional couple is saving $24,000 over twenty years (we'll use twenty years for ease of numbers and to match the twenty-year goal period for this portfolio). It's important to remember, though, that the money isn't all put to work right away, so the growing base is small for several years. Only $12,000 has been invested after ten years, and $18,000 after fifteen years, and so forth. Most of the money is not compounding for twenty years. Yet how do they do? That money, if $1,200 is added annually and if it compounds at 10% per year, grows to over $68,000 after twenty years.

The stock market, with dividends reinvested, has returned about 10.5% annually in the past seventy years. If you can top the stock market, your performance becomes even more pronounced. If you save just $75 per month, for example, rather than $100, and you grow that money at 12% instead of only 10%, at the end of twenty years you'll have about $65,000, or the same amount that you would have had you been saving $100 per month for twenty years at 10%. Your $18,000 (instead of $24,000) turns into $65,000 at 12% for twenty years.

Let's consider $100 per month in savings and 12% annual returns, slightly above the market's historical average. At the end of five years the portfolio would be valued at $7,620. Ten years: $21,060. Fifteen years: $44,736. Twenty years: $86,450. Thirty years: $289,596. A 15% return, on the other hand, would bring the money to $636,000 in thirty years. Remember, for this portfolio we're aiming to turn our money into $150,000 in twenty years, which requires over a 15% annual return -- actually 16%. But all of these numbers -- even the six figure numbers that can take only 1/4 of a lifetime to reach -- are based on just $100 saved per month.

As you can see, it doesn't take wealth to build wealth. It takes accumulation and patience. It takes moderate but regular savings. All children should be taught this at an early age, and all parents should begin saving and investing for their children as soon as possible -- if only to one day allow them the freedom to live in the world as they please. Money is never an end in itself, but is a great means to accomplish your true goals.

If you're fortunate enough to be saving more than the Drip Port's $100 per month, let's run through some numbers for you. $200 saved per month for twenty years while growing at 12% becomes $172,920. For thirty years: $579,200. If you can grow that $200 per month at a rate closer to 16%, in thirty years it becomes $1.27 million dollars. Add another $100 per month to your savings and that $300 saved per month while growing at the 12% rate becomes $259,000 in twenty years and $868,700 in thirty years. (At 16%, it would be nearly $2 million in thirty years and over $415,000 in just twenty years.) And odds are, over the years, that you'll be able to save more and more money each month as long as you're consistently running a smooth operation on the home front. Let's look at some simple goals to get (or keep) in place in 1998.

1. Pay down and payoff all credit cards, each month.

2. Pay yourself first once all high-interest debt is paid off. Always make your first monthly payment to yourself, after essential bills and the rent or mortgage are paid.

3. Set up a savings plan in this fashion and stick to it, automatically.

4. Organize that plan on paper, especially with DRIPs.

5. Live within your means, but don't shortchange yourself on experiences. Once you've paid yourself first by way of saving (and investing), don't be too timid to then spend the bulk of that month's wages, if you wish, actually enjoying yourself!

6. Invest only in things that you understand. Be an informed investor, and don't gamble or speculate with your money. Invest it.

7. Keep current with your investments, at least seeing how the company is doing every quarter. Consider attending the annual shareholders meeting.

8. Consider giving some money away every year. After all, that's a primary reason why a person should want to accumulate money: to share it and to share experience through it, and to help improve the lives of others.

If you have more general ideas, especially about DRIP savings plans that you've instituted yourself, and would like to share, please post them on the "DRIP Investing -- Basic Investing" message board. We'll share the best ideas on personal finance and savings plans (in relation to DRIP investing) right here.

Speaking of trying to help others, Randy should be here tomorrow!

Fool on!

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TODAY'S NUMBERS
Stock   Close    Change
INTC  $70 29/32  +1/32
JNJ   $65 5/16    +7/16 
            Day        Month      Year      History
Drip         0.08%    (4.31%)   (14.49%)    (14.49%)
S&P 500      1.81%    (0.21%)    28.71%       0.21% 
Nasdaq       1.73%    (3.94%)    19.09%      (3.53%)


Last Rec'd    Total #    Security    In At    Current
 12/01/97      6.082       INTC     $81.346   $70.906
 11/14/97      1.000       JNJ      $62.125   $65.438


Last Rec'd    Total #    Security    In At     Value    Change
 12/01/97      6.082       INTC     $494.72   $431.23  ($63.49)
 11/14/97      1.000       JNJ       $62.13    $65.44    $3.31 


Base:  $1003.88
Cash:   $393.63**
Total:  $890.30

The Drip Portfolio has been divided into 41.647 shares with an average purchase price of $24.105 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 15th of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:

Sent $100 to purchase INTC on 12/19/97.