As the Fools wrote in their 13 Steps to Investing Foolishly, all it takes to Drip invest is as little as $20 per month. You don't need a degree in finance to select stocks. Just use common sense -- invest in companies whose products you know to be superior, and try to choose from companies that have fee-less Drips. (See "Should I Accept Fees?") That's how I did it.
I'm married, with three small children, a mortgage, student loans, a car loan, child care expenses, etc. Money is tight and we live from paycheck to paycheck. This scenario probably sounds familiar to many of you. Under these circumstances, one could easily conclude that there is no money for stock investing. Examining our situation, I concluded that if we waited to invest until all our debt was paid off, we would probably never invest.
Accordingly, I consolidated and refinanced all our debt at the lowest rates possible, and began Drip investing in 1997. What were my investing goals? None -- other than a desire to invest in stocks rather than to transfer what meager savings I could forage to a bank. I was armed with the knowledge that, historically, the stock market has earned investors in excess of 10% annually as compared with much lower returns offered by banks.
I chose to invest in Exxon (NYSE: XON), buying my first shares through its direct stock purchase (DSP) program. Why Exxon? Many of Exxon's fans (to wit, Racerboy, aka TMFRacer) have extolled its virtues on the Drip board, but they bear repeating. Exxon is a company whose product I recognize and use, and one I feel will always be in demand. As one of the Dow 30 stocks, it offers consistent earnings, relatively low risk, and an investor-friendly Drip. The Drip features no fees (not even "company paid" fees which are considered income), a fee-less direct stock purchase plan with a $250 minimum initial investment, weekly purchases of stock with optional cash payments (OCPs) of a minimum of $50, the ability to transfer shares from your account to establish accounts for minors at no charge, and a readable statement.
I set up the account using the DSP by scrimping for several months until I had the minimum $250. I brown-bagged my lunch every week. I skipped "boutique coffee" and used the office coffee drip machine. Instead of buying tokens to get to work, I bought Metrocards, which give you a free fare for every $15 Metrocard you buy. Every dollar I saved went into a no-fee checking account I used to write checks to the Drip. Whenever I reached the $50 minimum or better, I sent in payments. Once or twice, when I had some extra cash from a rare windfall, I put that in.
The table below records my investments over an 18-month period. I suspended my OCPs in early 1999 due to share price appreciation and in order to diversify into other companies.
Date Trans. Amt. Share # of Total Purch. Price Shares Shares 11/20/97 1st Purch $250 62.463 4.002 4.002 12/11/97 OCP 60 62.887 .954 4.956 12/26/97 OCP 50 60.782 .823 5.779 1/08/98 OCP 80 59.941 1.335 7.114 1/22/98 OCP 65 59.582 1.091 8.205 1/29/98 OCP 50 60.436 .827 9.032 2/05/98 OCP 100 61.967 1.614 10.646 3/05/98 OCP 50 62.974 .794 11.440 3/10/98 Div. Purch. 4.36 63.134 .069 11.509 4/02/98 OCP 65 69.486 .935 12.444 4/23/98 OCP 85 73.495 1.157 13.601 5/14/98 OCP 50 73.456 .681 14.282 6/04/98 OCP 50 69.743 .717 14.999 6/10/98 Div. Purch. 5.58 70.338 .079 15.078 6/18/98 OCP 65 70.489 .922 16.000 6/25/98 OCP 50 72.564 .689 16.689 7/09/98 OCP 120 71.933 1.668 18.357 7/30/98 OCP 2000 71.597 27.934 46.291 8/13/98 OCP 100 67.616 1.479 47.770 8/27/98 OCP 50 69.955 .715 48.485 9/10/98 Div. Purch. 18.98 65.712 .289 48.774 9/17/98 OCP 60 68.924 .871 49.645 10/01/98 OCP 50 70.961 .705 50.350 10/29/98 OCP 50 71.550 .699 51.049 12/03/98 OCP 50 70.413 .710 51.759 12/10/98 Div. Purch. 20.93 72.087 .290 52.049 12/31/98 OCP 60 73.616 .815 52.864 2/25/99 OCP 50 67.337 .743 53.607 3/10/99 Div. Purch. 21.67 68.630 .316 53.925 4/15/99 OCP 50 76.680 .652 54.575 6/10/99 Div. Purch. 22.38 80.103 .279 54.854As of this writing, the value of Exxon stock is around $80 per share, and the value of my shares is around $4,388. I'm no mathematician, but that's about $728 more than the $3660 I invested, or 19.9%. Annually, that comes to around 13.3%, which is almost five times the 2.75% the local savings bank is paying for liquid savings accounts.
If you factor in reinvested dividends, my shares appreciated about $634.10 above the total investment (cash and dividends) of $3753.90, or 16.9%, amounting to 11.3% annually. That is four times what the banks are paying. When you consider these numbers, keep in mind that the petroleum industry as a whole has not performed well during most of this period due to deflated crude oil prices.
Nevertheless, investing a small amount, over a short time, in an underperforming sector, I still came out with over 10% returns. So much for the notion that you can't invest in stocks without a lot of money or experience.
Remember� one drop at a time, Fool!
Fool On!
Nelson
[Nelson E. Timken posts on the Drip boards as FoolishFinancier.]