Direct Stock Purchase Plans The $100 Million Family Fortune
Deep down, I think we all know the surefire way to build wealth is to start saving a little bit every month and socking it away some place safe. The news is inundated with stories about how just a few dollars invested a month in an IRA will make you a millionaire by the time you are 65. The trick, of course, is starting young (e.g., as soon as you can) and finding the right place to put it (e.g., stocks, bonds, savings accounts, etc.).
Unfortunately, every writer likes to talk a big game and tells you that savings and getting a good return on your money is the way to go but there is never any mention on how to do it. So, we are left to fend for ourselves in many ways and are bombarded by Internet advertisements, bank billboards, and email spam telling you of the 6% Guaranteed Savings Account or the 5.5% CD at your local bank. Excluding any fine print you may encounter (e.g., 6% only good for 30 days before reverting to 4.5% or early withdrawal penalties), it sounds like a pretty good deal. I mean, 6% is 6% and it is guaranteed, right? The problem is that although it might be a nice, steady return, when you actually take a look at it, the final number is not going to be where you thought it would be at. So, how do you get to the promised land?
Well, I am going to try to answer that question for you, and although I am not a licensed securities professional or financial advisor, I am just going to put 2 and 2 together and put something out there for thought: Direct Stock Purchase Plans (DSPP).
A DSPP is just what it sounds like it is a program that allows you to purchase stock directly from the company and often with fees far less than purchasing shares online through a popular discount broker. Even better, some programs charge no fees for you to purchase shares or maintain the account. That is right; you can buy stock in a host of companies absolutely free of service charges or brokerage commissions. Most importantly, nearly all DSPPs offer full investment of your dollars via fractional shares, automatic recurring investment from your bank account, and full reinvestment of the dividends you receive. For instance, in the event of fractional shares, say you have $50 to invest and the stock is trading at $40. Assuming no fees, you will be able to purchase and own 1.25 shares of stock, rather than having 1 share and $10 left over. This allows you to get full investment of your money and even entitles you to dividends and other benefits on the fractional shares. Over time, the tiny fractional shares can add up to a lot. We have all seen Superman III and Office Space, right?
So, where can I look? Well, most major blue chip companies offer DSPP plans. Information can usually be obtained in the Investor Relations or Shareholder Services sections of their respective web sites. There is typically an enrollment form and explanation of any minimum investment amounts required, service fees, and options for re-investing dividends and making periodic, automatic investments into the plan. Also, since the plans are in most cases managed by the company’s registrar and transfer agent, in some cases, the transfer agent web site gives you the chance to peruse and compare all of the programs offered by the companies they represent. Initial transactions and enrollments can often be done online electronically, without having to mail any documentation in. Furthermore, you will find that more than just big’ companies offer plans smaller companies are available as well.
So, what should I buy? Well, I am not going to just blindly tell you, but I will make a couple of suggestions on where to look.
First, going back to the original point of where to put your money, if you do your research, you will find that the majority of individuals and families that have acquired 7 and 8 figure wealth over the years are invested primarily in stable, blue chip type companies that pay dividends to their shareholders. Sure, these people may have missed the hot stock’ of the year, but the patience and sticking to what works for them has paid off. Regardless of what stock they are invested in, you will find that almost none of their money is invested in savings accounts or CDs. Historically, the stock market has done far better than investing in real estate or bank products (what thieves they take your money and do not give you anything back), so over the long-run, it would seem like a prudent strategy to park your money in some blue chip companies.
To get started, visit www.computershare.com. Computer Share is one of the transfer agents that offers DSPP enrollment right online and allows you to compare various programs. They even have a link for programs with no fees, of which you will find some very recognizable names such as Pfizer, Bank of America (yes, I said banks are thieves, and therefore can make a lot of money and can be good investments), and Exxon Mobil. These three companies are paying out 4.7%, 4.5%, and 1.8% respectively in terms of dividends to their shareholders and have strong histories of raising their dividends. Those are pretty competitive to the bank products (CDs, Savings Accounts, Money Markets) and now you have the opportunity to actually own a piece of these companies and play the odds in terms of building wealth for yourself and your family.