The first stock I ever bought was after my junior year of college. I was 20 years old and had a job as a bookkeeper for an old lady who had a tiny tax return and apartment rental business. I say “tiny” because she had about two tax clients and one apartment. Basically, she had been a big shot in the business world in the 60’s, had her own thriving business for a while, scaled that down to almost nothing, but still liked to have a bookkeeper around. (I think because she didn’t know how to use the computer) Mostly I was tracking her own personal expenses.
It was an odd job. I worked only a few hours a week, and a lot of that was spent listening to her tell stories about her life, past and present. She had a great mind for finance, and I picked up some useful advice that I probably changed my life. For one, I learned how to use Quicken, and I saw the benefits of tracking your expenses. I started tracking my own expenses right after that, and I’m still using the same copy of Quicken today.
The biggest takeaway might’ve been when she said, “Do you know what compound interest is? It’s the greatest thing in the world!” She owned some shares of IBM stock, and had seemingly owned them since the beginning of time. Over the years, she said she would buy sometimes, or sell some other times. But always, always the dividends were re-invested in more IBM stock. She told me about DRIP (Dividend Re-Investment Plan) funds, which we never learned about in school, as a good way for someone young like me to get involved buying stocks.
So I did. I opened a DRIP at the beginning of my senior year with Coca-Cola. Only the oldest, reliably dividend-paying companies seemed to offer DRIP funds, and Coca-Cola seemed like a more fun company to invest in than IBM or Exxon-Mobil or what have you. Plus, I figured that no matter what fads or technologies come along, people will always need something to drink, and whatever you want to drink, Coke will sell it to you.
Computershare is their DRIP fund administrator. So I bought the minimum required (probably $25 worth) through them and started automatically investing $10 a month, every month on the 15th. Fifteen years later, I’m still investing in a monthly basis. The only thing that’s changed is that I’m investing $75 a month instead of $10.
It’s worth about $8,500 now, which doesn’t sound like much considering I’ve been at this for fifteen years. Those financial tips you hear like “by just saving $10 a month, you can start a retirement fund!” are fibs. You need to do more than that. Luckily, the Coca-Cola holding is just a small percentage of our investments.
Who needs a DRIP fund?
Well, I’m thinking of officially ending our DRIP fund, in a way. Computershare charges fees for re-investing dividends and investing monthly. They charge $2 per automatic investment, plus 3 cents per share, and 5% for each dividend re-invested. Their website sucks, and it’s a minor annoyance that the Coca-Cola holdings are separate from everything else we have. (See Is Vanguard Getting Too Big?)
Aside from that, Comptuershare is a bastard if you try to sell shares. I don’t think they’re alone among DRIP fund administrators in this respect. They punish you for leaving. It costs $15 or $25 to sell shares, plus 12 cents per share. So it would probably cost us about $50 just to completely sell our position. And that cost will only increase as our position increases. So better to move out sooner rather than later, right?
If I move everything to Vanguard, re-investing dividends would be free, but new investments would cost $7 every time. That’s more than what Computershare charges. So I’m thinking of continuing to invest in Coca-Cola only once per quarter, instead of once a month, purchasing $225 every time (three months worth of $75 investments).
I’m not sure how much the exchange will cost (I’ve read conflicting reports), but it would be cost less and be less risky than selling and attempting to re-buy it at the same price.
Anyone else have, or used to have, a DRIP fund?