Drip Investing To Increase Your Returns
Drip investing can be a very powerful tool which can multiply the return you make on your dividend stocks. It is something that can help nearly every single long term investor improve their performance.
We all know what dividend investing is, you simply buy a group of high dividend paying stocks and hold onto them for the long term. You definitely benefit from the monthly cash flow, but there is a way to increase your return even further.
This powerful way to increase your returns is called drip investing and what it does is simply reinvest your dividends. For instance say you made $20 in dividends one month, well you could always take that $20 and spend it, or you can have it automatically reinvested into the company.
If the dividend is reinvested audomatically it will be able to grow and multiply into more and more dividend producing shares.
Just to give you an idea of how powerful this technique is compared to regular investing let us look at an example. Let us say that you want to invest $1,000 into a stock. The stock pays out a 5% dividend and has an average return of 10% which is around the average stock market return.
If you simply buy the stock without doing any kind of drip investing on it then after 10 years you would have about $2,963. Remember some of that would be from dividends, so chances are you would have spent some of the money and would actually have a little less.
On the other hand if you had bought the same stock with the same $1,000 and held it during the same time period, but you decided to use reinvest the dividends on it you would have $4,045 after those same 10 years, and because you have not spent any money that would be the full amount that is in your account.
So if you are willing to hold off on using the extra cash flow and want to reinvest it this strategy can drastically increase your long term gains.
