With all the questions I’ve received recently about buying stock without a broker, this seemed like the perfect opportunity to explain why Dividend Reinvestment Programs, or DRIPs, might make sense in your investment portfolio.  Not only can you pay little or no commissions on the stocks you purchase, you can setup regular transactions so money is automatically withdrawn from your checking or savings account to buy more ownership in a company.  The interval and amount are up to you – $ 25 a week, $ 500 a quarter; whatever you want within the plan guidelines.

These types of DRIPs can be a great way to start investing.  They are simple, easy to understand, and you get a regular account statement that can help you think like a long-term business owner.  Your statement should include a detail of your transactions, such as buying shares and selling shares, along with a dividend check for your pro rata portion of the earnings the company distributed.  When you find great businesses and focus on the financial health of the enterprise, and the size of the dividend check you are receiving, it makes it easier to keep your priorities straight and avoid stupid mistakes.

To loosely paraphrase the great Warren Buffett, build a portfolio where those checks march ever skyward, year after year, and the day-to-day stock market fluctuations won’t matter nearly as much to you.  To get started, read Dividend Reinvestment Programs, or DRIPs, Could Be Your Portfolio’s Best Friend.

Don’t Want to Pay Brokerage Commissions? Consider Investing Through DRIPs originally appeared on About.com Investing for Beginners on Wednesday, February 29th, 2012 at 20:11:07.

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