ALEXANDRIA, VA (July 29, 1997) -- We've received a truckload of email and we'll aim to answer many of the questions today in this column, because before we roll into action we want everyone on the same page. We have plenty of time to get to work, but we all need to slow down and realize exactly what's happening here first. So, let's take it one step at a time and go over the main points.
This portfolio is a real-money portfolio just like the Fool Portfolio and Boring Portfolio. While those two portfolios began with $50,000, this one begins with only $500. Our aim is to grow the portfolio to $150,000 in twenty years. We'll be adding $100 per month over that time, or a total of $24,000 by the end of twenty years. We're aiming for market beating performance -- by a generous but realistic amount.
The nightly recaps will be posted by 7 pm ET. There is no fee to follow the portfolio or to read the nightly recaps. Like all content on the Fool, it's free. The recaps will explain what the portfolio is buying and why, and we'll announce each stock purchase at least one week in advance. We aim to buy companies that we won't have to sell. We want to buy the best of quality.
The portfolio is using the DRP or DRIP investment approach -- meaning, we buy stock directly from companies without paying brokerage commissions, and we can buy stock in small increments -- say, even $20 per month. We'll be adding $100 to our portfolio each month, and we'll of course share where we're investing that money as we add it. At first, we plan to invest our initial $500 into four or five companies. Then we'll spread the extra $100 per month into these five stocks, and we'll discuss other possible companies too, and dissect the ones that we own.
The Moneypaper is the "broker" that the Fool is using to buy its initial shares of stock. In order to buy stock directly from a company, you need to first own one share, in the majority of cases, and then enroll in the company's DRP plan. Rather than use a broker to buy that one share and then enroll ourselves in a company's DRP plan, we're using the services of The Moneypaper. It makes it easier and is economical.
The Moneypaper doesn't have anything to do with managing or running this portfolio, though. It only serves as our "broker," completing our transactions. You don't need to use The Moneypaper or buy anything from The Moneypaper in order to follow this portfolio. If you're interested in setting up an account where you can buy stock directly from companies in small amounts, as we are, we suggest The Moneypaper because we know it, we're using it, and we're happy with it.
The Moneypaper offers three primary services. It publishes a Dividend Reinvestment Guide that reports specifics on all the companies that offer DRPs and accept optional cash investments on a regular basis. It also offers DRP purchasing and selling services through Temper of the Times Communications, the transfer agent. You can start your DRP accounts through Temper for $20 per company if you don't subscribe to The Moneypaper, and for $15, in the most cases, if you do subscribe to The Moneypaper. Either way, it's a good price to begin a DRP account, and after the first share is bought, there are no fees (or minimal fees in some cases) to buy additional shares.
Finally, The Moneypaper offers a subscription to a monthly newsletter that explains interesting DRP possibilities and strategies. For our portfolio, though, we're of course making the decisions ourselves, online, through our own research. We're using The Moneypaper services to make the transactions.
The Moneypaper's website lists about 1,000 companies that offer DRPs in which more money can be invested on a regular basis, and also offers assistance in setting up a DRP account. The company is also offering free information on its services to Fools, and a special subscription offer for Fools that is well worth considering. Just fill out the form and they'll send you information on what they offer and on setting up DRP accounts. There is only one form that you'll eventually need to fill out in order to begin buying stock directly from companies. You fill out that form and send it back with your check.
It takes about eight weeks for most DRP accounts to begin, whether you use your broker or The Moneypaper or First Chicago Trust, or anyone. It takes some time. Once a DRP is begun, the statements are monthly and timely, and you can invest monthly, too (though some companies only offer quarterly investment periods). It's really rather simple. Some companies even allow for automatic deposits, taking your monthly investment from your checking account. Otherwise, you simply mail your check each month just as if you were paying a bill -- except, of course, you're paying yourself, and paying yourself well.
Next topic: In order to account for the portfolio's monthly infusion of cash, we're using a rolling accounting method. We'll "dollar-cost average" into stocks, and our cost-basis will be averaged, too. We'll talk more about this as we make our first and subsequent purchases. Finally, some people have written with concern about capital gains taxes. We have no plans to sell, though, for decades. Dividends are taxed as income and we'll talk of that when we get there. Income is nothing to worry about.
So, one step at a time.
If you're interested in setting up a DRP account and investing in stocks directly on a monthly basis, read about the process online, send for the free Moneypaper information, and learn about your options. It's pretty straightforward -- a lot like setting up a savings account -- and the reward makes it more than worthwhile. Once you're up and running, sending a monthly check to great companies to buy their stock, not paying commissions or any fees, and seeing your account balances grow -- well, you'll be a very happy Fool.
So, we of course want everyone to understand what is taking place here before we begin -- what we're doing. We're running a real-money portfolio, investing monthly through The Moneypaper, our "broker," and avoiding commissions in the process. Tomorrow we'll start talking about the companies that we're looking to buy.
Thanks for all the email! Wow! We hope this answered some questions. We're anxious to begin, too, but we all need to understand exactly what we're starting here before shoving off and sailing out of the dock. If you have more questions, please go to the DRP message board, so everyone can read and see the answers.
And last but not least: We'd like to name the portfolio by committee -- Foolishly. We feel that The DRP Portfolio or Direct Portfolio are too plain -- though accurate -- and we're open to suggestions. Please send them! We'll reward the Fool with the winning suggestion -- by giving them unending praise.