Question: I am a small-investor starting out (approx. $75-150 a month). I have not started buying anything yet. I am torn between no-fee DRIPS or dividend-paying ETFs. Not sure which one to start with. Any opinions will be helpful. Thanks!
David Linnell: Well you are headed in the right direction. Is this in a Roth or taxable account?
Tim Delph: Taxable account
David Linnell: You can diversify better with ETF‘s but either way the Divs are taxable. With the ETfs you will have to pay the transaction to reinvest and if it is a small amount it won’t be worth the trade cost. I would look at low cost index fund on Vanguard like a…See more
Tim Delph: I am not eligible for a Roth IRA because we will be filing “married but filing separately” and we make over $10,000.
David Linnell: 10K?
Tim Delph: Yes http://www.rothira.com/roth-ira-eligibility
Roth IRA Eligibility Requirements: See If You Qualify | RothIRA.com
rothira.com
David Linnell: Wow I did not know it was that low for filing separately. Kind of bullshit actually.
Tim Delph: Sadly, yes. We have to start filing separately because of our student loans. Combined income makes our payment bigger.
Mike Dodge: Wow, that 10k limit makes no sense compared to the other 2 numbers.
Tim Delph: I agree.
Wade Yandell: I would suggest a third option. A no load index or dividend fund. Assuming you could buy for no fees, it would offer you diversification without eating you alive on fees.
Tim Delph: Wade, are you talking about mutual funds?
Wade Yandell: Yes.
Tim Delph: The passive-managed funds? I will look into this.
Sue Weed: Tim you can set up a Drip on an ETF through Fidelity so you might be able to do it with other brokerages. Pick a dividend ETF her is a link to some options http://www.dividend.com/dividend-etfs/
Top 57 Dividend ETFs: Sort By Yield, YTD Return & Trend
dividend.com
Wade Yandell: But every time he buys new shares, he has to pay a commission right?
Sue Weed: At Fidelity after my initial purchase of a stock/ETF/REIT/MLP/Fund all dividends are reinvested (“dripped”) at no additional cost to me, but if I add to my position by buying additional shares the regular cost of $7.95/order applies.
David Linnell: Unless he sets something up with an individual company https://www.directinvesting.com/search/no_fees_list.cfm
Companies that don’t charge you fees or commissions to invest directly through its Direct…
directinvesting.com
Dave Chambers: Drips are long term, etfs short term. Mutual funds spread the risk. 3 good options …..pick a path and good luck.
Sue Weed: ETFs are like mutual funds in terms of their diversity and attachment to an index but, unlike mutual funds they can trade throughout the day. See Vanguard Total Stock Mkt mutual fund VTSMX or etf VTI.
Robert Bartlett: Agreed, vanguard has many index based, and sector based ETFs with low expense ratios. That would be my suggestion too.
Sue Weed: Robert Bartlett Fidelity, through Black Rock, does as well.
Tim Delph: I did not think of ETFs has short-term. That is interesting. okay.
Sue Weed: Tim Delph neither do I. ETFs trade-ability vs Mutual Funds is a plus but I am long term either way.
Robert Bartlett: There is also no 1000, 3000, 10000 minimum requirements to jump in as is the case with many MF’s. You can literally buy one share of an ETF. Not that I’d suggest doing so.
Tim Delph: Yea I have seen the min req’s too. I would have to save a while to get it.
Sue Weed: Tim Delph if it is in a IRA/ROTH a lot of Mutual Funds waive the minimums for periodic investments.
Tim Delph: I am not eligible
Dave Chambers: It is very obvious that options exist for any strategy. Pick a path, trust but verify, and invest consistently
Hanson So: Does the $75-$150 a month come from monthly savings? Can you increase the amount you allocate?
Tim Delph: I might be able to. It just come our paychecks each month.
Sue Weed: Tim Delph are you fully invested in a ROTH?
Tim Delph: I am ineligible because we will start filing married separately, and make over $10K.
Hanson So: Check your other inbox
Sue Weed: Tim Delph If you are single, you must make less than $116,000 to contribute to a Roth IRA. If you are married, you must make less than $183,000 in 2015.
Tim Delph: If filing jointly. We will be filing jointly because I have student loans and my payment would use our joint income vs my income. Combined income equals a lot higher payment.
Alfredo Torres: A better question would be on more specific cases (i.e. Drip company x over etf y;) that way we can look at them and see how their performance relative to each other will play out. Generally, here are some metrics for drip: how many shares can you purchase (now and per month,) per quarter how many shares can your dividends buy, and what is your growth and time span on your holdings? For etf, about the same. Just take into consideration how long to cover your costs and if opportunity cost is justified. Use conservative variables to err on the safer estimate with more room.
Bernie Klunder: SCHD & NOBL etfs until you have 50K, then evolve into a diversified dividend growth portfolio
Eric Finck: I would start off using Loyal3.com no cost to buy or sell!
LOYAL3
loyal3.com
Tim Delph: I have looked at that. That is really appealing.
Eric Finck: Been doing that for about a year and a half. Really easy to do. Only downside is you are not buying in real time
Bob Stag: But if holding period is long term, that is (and I know, maybe after 20-30 years it adds up), a minor setback. Been using Loyal3 for almost 1 year with AAPL, KO and FTR. Like small amount to purchase, wish all stocks were eligible got no cost dividen…See more
Tim Delph: I basically like the index and dividend ETFs because of the broad exposure from different companies, but I am not actually owning any stock in a company. That bothers me. On the other hand, I like the Drip because I am working towards owning real stock, but it will take a long time possibly to have any number of shares in each company. As far as fees, T D Ameritrade and others has no-commission ETFs., while some DRIPS has the no-commission ones. Everyone’s advise has been great. And I will welcome more as I do research. Thanks to everyone.
Eric Finck: The good thing with Loyal3.com is you can invest as little as $10 at a time. Buying fractional shares and before you know it your money making snowball is rolling. Doesn’t take long and you have whole shares. You get paid dividends even if you don’t have a whole share.
LOYAL3
loyal3.com
Tim Delph: I just looked at some reviews, and some were complaining about Loyal3 locking up balances and dividends. You never ran into this?
Tim Delph: And are the stocks that you buy in your name or in the Loyal3’s name?
Eric Finck: Have never had a problem getting paid dividends. The stocks are held in my account but in there name. This is a great way to be diversified with small amount of money
Tim Delph: okay
Tim Delph: I was looking at the website again. It is truly appealing.
Eric Finck: I also have a Roth, 401k, and individual drip stocks. Check out firstshare.com
DRIP Investing: Dividend Reinvestment Plans and Direct…
firstshare.com
Tim Delph: I can not reinvestment using Loayl3, right?
Eric Finck: Yes you can. The dividends are paid to you in your cash account then you decide where to allocate
Tim Delph: oh cool! Okay
Jason Waite: I think that’s awesome your paying yourself 1st. 🙂 Keep it up man.
Tim Delph: 🙂 thank you.
Greg Williamson: I would start with a couple of ETF’s. DIA, which consists of the 30 DOW Jones Industrial Average stocks, is one of my favorites. It pays a decent, monthly, growing yield. Also look at DVY and PID. After that I would start buying safe, dividend paying individual stocks such as Johnson & Johnson, Apple, Proctor & Gamble, Walt Disney, and GE. Those 5 will do you right!
Tim Delph: PID meaning the Power Shares International Dividend ETF?
Tim Delph: How many individual shares of each company should I buy of each of those or does it vary, Greg?
Greg Williamson: Yes, it consists of the best of the best dividend paying international stocks.
Greg Williamson: It depends on your brokerage. Most on line brokerages are cheap and you can buy as little as you want. I would buy a certain dollar amount and not worry about how many shares it consists of. I have bought less than a share many times, for example with Apple before it split and Amazon.
Greg Williamson: There was a discussion on the site recently regarding free on-line brokerages. Scroll down and find this discussion and it will offer quite a few options. i use folioinvesting.com with $2 trades in my Roth IRA. Trading fees are relatively insignificant if you choose the right one. There is no reason to pay $7/trade when you can get it for $2, or possibly free.
Folio Investing | Investment Brokerage with Commission-Free…
folioinvesting.com
Tim Delph: I am checking that out right now
Robert Bartlett: Dividend ETFs I hold are VYM, VIG and DVY for what it’s worth.
Wade Yandell: I’ll give you my background, fwiw. I saved up over the first 12 years of my career via workplace 401k plans plus company matches as well as some traditional IRAs. When I left my second job I had about 130k and rolled into a Fidelity IRA, where I started buying individual stocks. I think once you get to 50k+, you’ll have enough to buy individual companies in large enough amounts while maintaining diversification.
Tim Delph: Thank you. That is helpful.
Wade Yandell: Just keep it up, it adds up in a hurry.
Tim Delph: Diversification. That is very important
Greg Williamson: You don’t need $50K to buy individual stocks. I opened my account in 2002 with $20 and started immediately buying individual stocks. With low commissions you can open multiple diverse positions with relatively low amounts and build the positions over time. I used to buy $20 per month of Johnson & Johnson when I first started in 2002.
Wade Yandell: How low is low? Even $1 on a $20 buy is 5%
Greg Williamson: I would stick with the amount Tim mentioned for each purchase, between $75 -$150 per month.
Greg Williamson: When I started out the on-line brokerage I used had a monthly fee of $5.99 for unlimited trades with a $20 minimum per trade. I started out buying about 10 per month at various amounts as low as $20, and added to them each month. I gradually added a ne…See more
Greg Williamson: Unfortunately the ones I started with did not include Apple, Amazon, or Netlix but I eventually got them. I first bought Apple and Netflix at a split adjusted $7!
Tim Delph: How many shares do u typically own if i may ask?
Greg Williamson: I do not focus on the number of shares, I focus on the value. Priceline is $1,130/per share and Apple is less than $100/per share. It would take 10 times as much money to buy a share of Priceline than it would for a share of Apple.
Brian MacLaine: You also have options out there in Loyal3, Betterment, Wisebanyan and Wealthfront, but Loyal3 has a very limited selection of stocks to choose from and the other three don’t give you much power over the stocks that are thrown into your portfolio. Still those are pretty decent starting points, I’ve found.
Sue Weed: Motif is yet another possibility for buying batched stocks at low cost.
Brian MacLaine: It is low cost, and I do like it, but as a tool for a monthly investment strategy those meager commissions can add up. But then I’m cheap like that.
Bernie Klunder: Another good option with a good performance record is VDIGX if you have $3K to begin with. Then add more in monthly.
Coelho Zé: I would open an individual account with fidelity and use the 75-150 a month to buy a very low cost large cap blue chip ETF that pays close to 4 percent dividend.. The purchase in fidelity is commission free for HDV. HDV is very cheap now… You can’t afford to take risks with just that amount… Don’t buy individual stocks until you have a large portfolio..
Tim Delph: I am leaning towards buying some no-commission ETFs inc one like that you speak of, and get some quick exposure and start investing, Then buy DRIPS later. I have a TD Ameritrade account and they offer over 100 no-commission ETFs.