Playbook #006: DRIP (Dividend Reinvestment Program)
🖼️ The Big Picture
In the aftermath of the 2021 GameStop short squeeze, one could argue that many people’s view of the stock market is closer to gambling, as opposed to the old-school investment approach of buying stock in solid companies based on their value and your belief in their longevity.
Well, DRIPs (dividend reinvestment plans) are a more boring (albeit reliable) way to play the “old school” game by investing in public companies that have been around for decades.
The idea is simple. Buy stocks that have been paying out (and raising) uninterrupted dividends for decades, and then have those dividends automatically reinvested in that stock. You profit from compounding growth over the long term by having the earnings (dividends) of the company automatically increase your own holdings with additional shares (or fractions of shares).
It’s a powerful and proven strategy that can work for stocks, mutual funds, and ETFs. Studies have shown that for most retail investors, actively trading isn’t the best route. Instead, parking capital and tuning out the market is the best way to maximize long-term returns (of course, once you’ve done your due diligence to make a good buy.)