What If I Can Only Invest a Little Every Month?

Congratulations! If you're investing set amounts of money every month, you're dollar-cost averaging! That simply means you're buying more stock when prices are lower and less when they are higher. Some folks think this is a great way to avoid volatility in the market, because their investments "average out" over time.

So how can those on tight budgets buy stock? Many publicly traded companies have made it easy with DRPs, also known as Drips. (Insert your own joke here.) DRP stands for the very unfunny-sounding Dividend Reinvestment Plan. Drips and their cousins, Direct Stock Purchase Plans (DSPs), are great ways to invest small amounts of money cheaply; they allow you to bypass brokers (and their commissions) by buying stock directly from the companies or their agents.

More than 1,000 major corporations offer these types of stock plans, and many of them are free -- or have fees low enough to make it worthwhile to invest as little as $20 or $30 at a time. Once you're in the plan, you don't even have to buy a full share each time you make a contribution. Most Drip investors buy a set amount of stock on a monthly basis, thereby dollar-cost averaging over the life of their investment.

Here's how it works: Drips allow you to reinvest dividends into more shares of stock, and they allow you to purchase stock in fractional amounts -- meaning that if you want to spend $100 buying shares of Microsoft, you can do so regardless of what the price of one share of Microsoft may be. So, if Microsoft is selling at $75 a share, you'll buy 1.33 shares of it with your $100; if the stock is selling at $125 a share, you'll get 0.8 shares for the same amount.

Many Drips will set up an automatic payment plan for you, so you never even miss the money you're setting aside for your future. Dripping for dollars can be one of the surest, steadiest ways to build wealth over your lifetime (just make sure you keep good records for tax purposes).

But what if you want to invest in a company that doesn't have a Drip plan? Some brokers offer many of the same services as regular Drip programs. Companies such as ShareBuilder, FOLIOfn, and allow you to set up Drip-like accounts where you can buy shares of any of 4,000 stocks (and many index funds) with low transaction costs.

Make sure you understand how these plans work and their particular quirks. For instance, BUYandHOLD currently has a monthly minimum. ShareBuilder has a higher charge to sell a stock. That's not going to be a problem for Drip-type investors, but it's something to keep in mind if you think you'll be an active trader. Also, as with Drip investing generally, the share purchases for any of these brokers are not necessarily made according to your schedule -- although all offer real-time trades for those occasions when you need to act quickly.

To evaluate whether these services are good deals, let's consider the Foolish maxim of not allowing your trading cost to exceed 2% of your total transaction. The lowest fee available from ShareBuilder and FOLIOfn is $4, so that would mean you'd want to invest at least $200 at a time to stay within the limit (2% of $200 = $4). If you can't come up with $200 each month, though, just stash the cash in a savings account until you get there, and then make the transaction.

Because of the $7 fee at BUYandHOLD, however, you'll need to make sure you invest at least $350 each month (2% of $350 = $7). This certainly makes the service less attractive for many Drip investors. Unless you'll be pumping $4,200 a year into the plan, your costs will exceed the 2% ceiling.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2008, at 5:31 PM, prginww wrote:

    Where can I find a list of companies that offer Drips? How do I actually buy them, especially if I want to avoid a broker?

    I'm a complete newbie at this stuff, but I've been saving my pennies...

  • Report this Comment On October 02, 2008, at 11:26 AM, prginww wrote:

    I have two accounts at Share Builder, one for each grandchild. I put $100 in each account each month and I purchase $100 of stock each montth. After reading your article I was wondering if I should be putting $200 into each account for the 2% maximum trading cost, or do the two accounts with $100 each give me the same benefit?

  • Report this Comment On October 14, 2008, at 7:57 AM, prginww wrote:

    I'm only 17, but I really want to invest. Do I have to wait until I turn 18? DRPs sound like a great idea for me. I do have a job and I think that by investing now, if the market recovers the way it should (the way it has in the past) then I'll do very well. I'm just not sure how to contact these companies to start a DRP. I guess its time for more research. Thanks for the help!

  • Report this Comment On November 10, 2008, at 11:24 AM, prginww wrote:

    Same question as dreadpiratekhan. Where can I find a list of companies that offer Drips? How do I actually buy them, especially if I want to avoid a broker? And I'm a newbie at this stuff too !!!

  • Report this Comment On November 11, 2008, at 10:15 AM, prginww wrote:

    I am also looking for information on how to invest. Will someone get back to me if I post on this site? just wondering. Thanks for the info.

  • Report this Comment On November 13, 2008, at 10:31 AM, prginww wrote:

    Oldfool0148 & dreadpiratekhan:

    This is not a complete list of DSPs on the internet but it was the best one I could find that did not require you to register on a particular site:

    Hope this helps...

  • Report this Comment On November 18, 2008, at 11:49 AM, prginww wrote:

    I also have the same question as dreadpiratekhan and oldfool0148,where can I find a list of companies who offer drips without a broker. Thanks

  • Report this Comment On May 02, 2009, at 1:53 PM, prginww wrote:

    @AlteredInvestor: you are probably paying a transaction fee for EACH $100 into EACH account. Make sure that you are getting a single transaction, with one fee, that is SPLIT into two accounts instead. If that is not the case, then you should be saving the money in a savings account and making transactions once very two months.

  • Report this Comment On May 02, 2009, at 1:54 PM, prginww wrote:

    Or, you could consider making a $200 payment into each grandchild's account, but only do one each month and alternate between the two accounts. That way you still get lower cost per dollar invested, and you get the money into the market sooner rather than sitting in savings.

  • Report this Comment On November 19, 2009, at 1:15 PM, prginww wrote:

    I would like to know as 41 year old man who has never done any trading or ever saved any money would a drip account be feasible for me? i don't know anything about the stock market just what I have read. I dont have a lot of money to start but i wonna start I just hope its not too late because i have only the bare minimum to start. Should i forget about the drip account because of my age?

  • Report this Comment On November 22, 2009, at 1:30 PM, prginww wrote:

    Ezeo: You shouldn't forget about the drip because of your age; however, you probably shouldn't do stocks right now at all if you don't have too much money saved.

    The first thing you need to do when you invest is assess how much risk you can handle. If your portfolio is long term savings then a recession with a 25% market crash isn't going to hurt you. If your portfolio is going to be used to pay an important expense in the next year, it could be very expensive to lose 25% of your money and then have to borrow the difference at interest.

    Start with bonds. Bonds have a near guaranteed return and won't fluctuate too much. You can learn about them a little bit on as well as other sites. They have lower returns but also have lower risk. As you start building a more long term portfolio that you won't need for a while, you can go into stocks where you can handle the long term fluctuations.

    Send me a message by commenting on my blog and tell me how it goes. I always like passing around ideas.

  • Report this Comment On November 22, 2009, at 1:42 PM, prginww wrote:

    Ezeo - check my blog for my story of starting investing small amounts. You'll hear plenty of people saying don't do it unless you have more money, and they may be right but I went ahead and started in 2006 and I'm very glad I did. I'm not far off from your age. When you think about it you've got over a decade before you retire. Plenty of time for long term buy and hold strategies.

    Also, not to nit pick but it's my understanding that Dollar Cost Averaging is different than regular, automatic investing. Dollar Cost Averaging is when you have a lump sum but you want to spread out the price point on your buys. So you make multiple purchases across time until you have invested the full lump sum and then stop.

    Regular automatic investing is just that - doing it regularly like clockwork. But without the specific goal of a target amount. I do both but I'm moving more towards DCA with target amounts.

  • Report this Comment On February 17, 2010, at 11:19 AM, prginww wrote:

    im new at this and i realy want my money to work for me. i have $200 dollars i cant put away every week. i really want to learn how to have my money make money. so if anybody can e-mail me and expalin i little more to me.

  • Report this Comment On October 29, 2010, at 4:47 PM, prginww wrote:

    Note that even though the lowest fee available at Foliofn is $4, they will charge you a service fee of $15 if you have not executed at least 4 trades in the last quarter. This makes for an effective trading cost of at least $5.33 per month (for the minimum 4 trades per quarter) and up to $9 per month (for someone making 3 trades at $4 each + the service fee).

    Sticking with the Foolish Maxim of no more than 2% trading costs, this means that you shouldn't invest using Foliofn unless you can manage to invest at least 266 per month.

    And if you decide not to invest in any given quarter, this will drive your annual trading costs up even higher, since you will be required to pay the $15 service fee anyway.

    After working this out, it seems that this membership works out a little like the Hotel California. You can join, but you can never leave (unless you close your account, in which case you will be required to pay $50).

    In summary, if you are really just investing a small amount of money, this doesn't look like a good idea.

  • Report this Comment On January 01, 2011, at 9:26 PM, prginww wrote:
  • Report this Comment On January 12, 2011, at 1:38 PM, prginww wrote:

    I am new and am very interested in such investment. I really wants to know more about because i have an amount of $10,000 , which i will like to invest. In this case how will i go about it without a monthly payment.

  • Report this Comment On April 05, 2011, at 11:01 PM, prginww wrote:

    I'm new at this,but were do you go to get a self directed IRA? I'm ready to invest but just like others I dont have alot of cash but the cash that I do have I want it to meet and make lots of friends(cash) and bring those friends (cash)home with them to meet their If you or any one else can help or have an input on this feel free to email me at in advance

  • Report this Comment On June 14, 2011, at 8:37 AM, prginww wrote:

    im new and in Ghana and i have some pesewas i want it to work for me can i?

  • Report this Comment On August 07, 2012, at 3:24 AM, prginww wrote:

    We lost our jobs,house,pension,and 401k in the 2008 bank fallout . After moving out of or should I say, getting foreclosed on, I became permanently disabled from a sporting accident after all this. My hubby was a WAMU medwig not a bigwig. We are starting all over.We can only start with $100 and probably only invest that much a month for now. Maybe we can invest more later, possibly $300 total. I'm 55 my hubby is 50 and has taken a $40k cut in pay. What do you suggest? We also want to try to have a savings to take vacations before we're unable at times. We realize he will never be able to retire now.

  • Report this Comment On November 17, 2012, at 4:46 AM, prginww wrote:

    Hi and thanks for the article,

    I was excited about the idea of being able to buy fractions of high priced shares and invest at the levels I can afford.

    I went to share builder, and found I needed a social security number.

    Hmmmm, as a Canadian expat living in Japan I don't have one.

    Does the author, or anyone else here know of any online brokerages that have DRP accounts accessible to Canadian expats living abroad?

    I'm especially interested in the core stocks, and cell infrastructure stocks.


  • Report this Comment On December 18, 2012, at 10:26 AM, prginww wrote:

    Thanks for this article guys. I'm a wiser invester already. With about $200 a month to invest I now see the best way to go is with the drips or with Sharebuilders.

    And I will be using your advice on which stocks to add to my portfolio.

  • Report this Comment On January 26, 2013, at 2:05 PM, prginww wrote:

    Hi, I'm 53 and i am new and interested to invest in stocks.I used to have a 401 k and still there I never touched it since I quit from the company where I used to worked that offers 401 k. What is the best thing to do with it. I am now working as a personal chef to a stock broker /investor do you think its wise to aproach and transfer my 401 k( I only have about 5 k on it)to buy stock from new employer?

  • Report this Comment On February 11, 2013, at 11:16 AM, prginww wrote:

    I am interested in Direct Stock Purchase Plans (DSPs) how do I find these companies?

  • Report this Comment On June 12, 2013, at 11:25 AM, prginww wrote:

    Hi everybody:

    I'm so sorry. I am newbie in this. Which will be the best option when you have some dollars in a saving account (7-8k) and you have the possibility for saving 500 monthly?

    Thanks a lot in advance!

  • Report this Comment On June 29, 2013, at 7:34 PM, prginww wrote:

    I am a 55 y.o. Female interested in investing to leave something to my children. How do I begin.

  • Report this Comment On July 23, 2013, at 9:17 AM, prginww wrote:

    Good morning everyone, I just turned 28yrs old and I have a two month old son, I don't have much to work with and I live pay check to pay check; I want to invest my money but I don't have much to invest, I also want to know is it to early for me to start buying stock/bonds for my son also, when he get older like 10-12 I plan on teaching him on how to invest in the market. I also am trying to start an investment group, I was wondering what will be the best approach for me as a parent with a son and a fiance? Can somebody please give me their advice on how to do this.

  • Report this Comment On September 23, 2013, at 11:46 AM, prginww wrote:

    Where can I find a list of companies that offer Drips? How do I actually buy them, especially if I want to avoid a broker?

    I'm new at this, but I've been saving my dollars

  • Report this Comment On December 29, 2013, at 4:56 PM, prginww wrote:

    I just joined and I see Fool doesn't answer peoples questions. Not good. All are newbies for the most part. Fool you need a tutorial section for all of us. Good luck all

  • Report this Comment On February 14, 2014, at 4:08 AM, prginww wrote:

    It does seem we all have to help one another around here since Motley's Fool is not answering our questions. However I have been gathering insight from some mature. seasoned vets onsite members and of course Motley's articles. I am a newbie on here also and I found this link that may assist others with the same question/s I inquired on earlier. Good luck all!

  • Report this Comment On May 07, 2014, at 12:09 PM, prginww wrote:

    I'm in the same boat as @HannahKate0791 Do you have to be 18 or older to invest?

  • Report this Comment On July 14, 2015, at 12:15 PM, prginww wrote:

    I've had good luck with Motley Fool answering my emails and phone calls. Sorry you're having that trouble.

  • Report this Comment On July 14, 2015, at 12:15 PM, prginww wrote:

    And thanks for this article!!

  • Report this Comment On July 20, 2015, at 3:47 PM, prginww wrote:

    I'm a disabled Veteran trying to live on my disability pay. I decided to give Motley Fool an opportunity to put their money where their mouth was. How or what would the best way to invest, so that I can protect myself financially. I haven't owned any stocks for over 40 years, and I decided it was time to try it again, but I will have to start small and easy.

  • Report this Comment On September 24, 2015, at 2:42 PM, prginww wrote:

    Please help me with this drip way.My Aunt though she took care of me even wrote me a 14page letter on how stocks work And due to an old never recorded will I lost all she wanted for being disabled and only getting 716.00 mth it's a need not a want to have. Extra money I can rely on.Now my Aunt had bough ten every one a portfolio in aprx.2002 but because she was paying bills on to homes And they weren't doing good she left me 2 shares of Exxon. I had the intrest wrap around but I see that's a mistake ax compushare takes all there Fee's out and instead of a 89cent check you get 36cents wraped around And I would get those socail sec.books but it says once you file it's to late I recive ssdI thanks deb

  • Report this Comment On November 23, 2015, at 12:52 PM, prginww wrote:

    I am retired and a newbie to stocks. Where is a good place to start with a minimum of funds.

  • Report this Comment On May 05, 2016, at 9:20 AM, prginww wrote:

    This seems to provide what most are looking for - a list of over 1600 DRIPs or DPPs:

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