by Ken Spitze

Created on: March 18, 2009

Perhaps the best way to regularly invest small amounts of money in the stock market is to enroll in dividend reinvestment plans, often simply called DRIPs. These are programs administered by individual companies that allow investors with (usually) just one share of stock to allow all of their dividends to be automatically reinvested in whole or partial shares of stock. Some companies require that you own the share(s) before enrolling in the program, while other companies allow direst stock purchase (DSP) whereby the initial share(s) can be purchased directly from the company rather than through a broker.

The often-quoted advantage of this strategy is that it avoids commissions to brokers. This is sometimes true, but more and more, companies are instituting fees for purchases, reinvestments and most particularly for sales. So, the first thing to do is to research the DRIPs of companies and try to find those with low or no fees when purchases are made.

Because more and more companies are adding fees to existing DRIP and DSP plans, it is important to stay on top of the companies' plans. If the increased fees are only for sales, then that is not such a problem if the money will remain invested for a long period of time. If the new or increased fees are for purchases, then one must consider the frequency at which purchases are made. For example, if a fee is added to each purchase, then larger purchase might be made with lower frequency to reduce the overall cost. However, if new fees are associated with the dividend reinvestment, it's a good idea to carefully consider whether to remain with the company one of the key advantages of DRIPs is to allow dividends to be converted into shares without cost.

As with most stock market investments, it is best to use only money that will not be needed for many years, or indeed until retirement. If small regular investments are made during a lifetime, the total can grow significantly.

One of the most important things to consider is the companies into one is going to invest. It is a good idea to select several there is always a risk in investing, and spreading the funds into many companies will reduce the possibility of major loss due to problems in a single company. Similarly, it is a good idea to invest in companies in different sectors, that is, in different industries.

Finally, it is important not too get anxious about short terms changes in stock pricing. If you are investing in DRIPs, it should be a long-term decision just decide how much and how often you are going to invest, then just watch your investments slowly grow throughout your lifetime.

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