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Investing for long term, Reinvesting dividends?

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markfrazer89

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Hi guys,

So far ive put about 6k into stocks and am up about $500 since I started about 2 months ago, However I am thinking that maybe I should put my money into 1 or 2 blue chip stocks such as woolies or Telstra and every year keep investing the dividends I receive plus a little extra.

I am 23 years old and would hope to do this for the next 25-30 years, hopefully adding atleast 1k every year plus dividends.

My question is about what is the best way to go about this, as I don't like the idea of paying the $20 brokerage fee everytime I buy more shares, but if that's the only way then so be it I guess.

I have been researching about compounding growth and all that so I think this would be a safer and quite beneficial for me instead of investing on stocks I think might take off and hopefully getting lucky..


Thanks for the help guys!
 

Many companies offer dividend reinvestment plans which basically let you reinvest the dividend for shares in lieu of cash and without incurring brokerage cost.

As to additional small amount of capital into certain shares - you can't avoid the brokerage and it will always be a drag on your capital, but you can try to reduce that by either finding a lower cost broker or waiting for when you have a larger amount to invest.
 



Yeah I would only be re investing about once a year with atleast 1k, when the time is right with the price of the stock.

Do you know of any blue chip companies that offer these plans? I have heard of them, but wasn't sure which companies had them.
 
burglar said:
Getting rich slowly, is a great strategy for young people. Good luck!
Click to expand...



Yeah hopefully works out well, do you think I should stick to just 1 stock and build up my shares over time, or a few more.. I do like to diversify, but as long as its a very stable blue chip stock, I wouldn't think diversity would be matter so much. Just worried about brokerage costs with having too many stocks.
 

There are a number of 'blue chip' stocks which have gone under.

For a passive, long term strategy I would think diversification to be a VERY important factor.

You may want to look into products such as ETF's or LIC's. They provide market wide exposure
 

Brokerage is simply the cost to do business. Compared to picking the right stock and buying at the right time, the brokerage will be the least of your worries.

Diversification is definitely an important aspect. Even with a $10K portfolio, spreading the funds across several main sectors will reduce the risk of picking the one rotten apple - and there definitely are such apples.

Regarding DRP: I don't like the idea. More often than not, the shares that pay good dividends will be sought after around dividend time. Being sought after usually implies a higher price compared to "in-between" times. Therefore, I find it better to top up when the price hits a lull. One can always reinvest the dividends, that's not the problem. But why let the company determine how many shares I should add and at what price? Why not pool the dividends, top up from savings earmarked for this purpose, and then decide, based on the current and planned composition of my portfolio, at which time and at which price to buy a particular number of one or two particular shares?
Accepting the DRP seems to me a "lazy way" of letting others decide.

Just my worth of food for thought...
 
Whatever you decide, don't forget to keep good records if you do reinvest via a drp. It can be a nightmare to work out your cost base if you haven't paid attention to the bookkeeping.

Fwiw, with such small sums to invest I'd go the LIC/ETF route - something like STW will give you exposure to the ASX 200.
 


Yeah I do agree with you on that, I will save up a good sum and wait until the price is right to add some shares.

With diversification I was thinking something like, 1 of the banks, Telstra, insurance (maybe qbe), and maybe woolworths or something.
Would that be a sound investment, or should I more diversify in 1 specific sector..


Otherwise I will also look into what Dock mentioned with the ETF route.
 

You've got all the time in the world, why not look at some small caps that still have loads of organic growth left in them rather than a large cap where most of your return will come from the dividend? You do have to do a bit more homework with small caps but if you find investing interesting then homework is fun!
 

+1
ARG / AFI have decades of out performing the market.

Certainly not high yielding, but they provide better than a lot of bank interest rates these days and pretty decent capital growth over the years. Both offer DRP.

As someone else mentioned, keep very good records as DRP can be a real pain when you go to sell. Lots of small parcels of shares at different prices.
 
markfrazer89 said:
With diversification I was thinking something like, 1 of the banks, Telstra, insurance (maybe qbe), and maybe woolworths or something.
Would that be a sound investment, or should I more diversify in 1 specific sector.
Click to expand...

The first approach sounds better to me. Limiting yourself to only one sector is not diversifying.
... and if you want to "learn" over time, you'll gain a better understanding by picking and managing your own specific portfolio rather than letting others (e.g. ETFs or STW) do it for you.


IMHO, that's OK for an experienced stock picker/ investor. Not for a newbie.

burglar said:
If you buy Coles (WES) or Woolies (WOW) you get diversity built in.
Click to expand...

True, but again: one sector only.
 
pixel said:
IMHO, that's OK for an experienced stock picker/ investor. Not for a newbie.
Click to expand...

That's true. But you need to start somewhere and, imho, it's much easier to understand a small business with few moving parts than a company like TLS or WES/WOW.
 
kid hustlr said:
There are a number of 'blue chip' stocks which have gone under.

For a passive, long term strategy I would think diversification to be a VERY important factor.
Click to expand...

Very true, however not many blue chips have gone under overnight.

Spending on what you need (not want), investing the rest in solid investments is the key to building wealth. Unfortunately it sounds easy and other people dont make money out of you doing this so people to try to 'sell' more complicated strategies.

If you have time (and you do), then the key is understanding compounding. Dont go nuts for instant success.

Your key is to find those 'solid' investments. Look at the market, looks at dividend yields, look at the industry of the company you are looking at. Look at ETFs, there are yield based ETF's etc.

The only criticism of 'buy and hold' is often people confuse this with buying a strong company today, and holding it forever with no further research or understanding.

Of all the blue chips which have crashed and burned, there was AMPLE time for even a layman who looks at the markets once a month to have saved most of his dough.

You still have to be aware of where the economy, the industry and the company is going.

For example, I like TLS. Many do. Good company, good yield, good industry and the top of the tree in its industry in this country.

However, should regulation change, I will be onto that. Should something fundamentally challenge TLS's position in its industry in this country, i will consider my investment.

What I am trying to say is - you are still an active investor when you say you 'buy and hold'. Dont 'go to the beach' and just forget about a stock for 20 years.

Dont fall in love with a stock or a ticker or a yield. Your money doesnt care where it is, in TLS, WOW or BHP. Invest your money for the long term. That may not necessarily be in the one set of stocks for 20 years.

But it could be and often is.
 

Further to above information I like to add some more.

If we reinvest dividend in wonderful businesses with great value we may have attractive capital gain in the long run. It is also wise to put money in business that we know very well. In addition we have to keep an eye on long term fundamentals factors and new developments etc.

Some large companies may have slower growth due to competition and weak fundamentals in the future. On other hand some small companies will become big companies and will become market leaders in the future due to strong fundamentals in the future. Market, sector or company never stay the same, like human being they will change.
 
Hi Mark,

Not too much to add but as you've already done; research, like brokerage, is part and parcel of the investing business.

I do want to say that it is great to see a young 'un looking to the future and financial freedom. You've already discovered the beauty of compounding and hence DRP which will place you in good stead indeed.

LIC's have been mentioned and these are a great way of diversifying without holding multiple stocks. Look for discount to NTA (although with the flight to better than bank deposit returns, this may not be easy) and especially look for low MER. Anyhow, your on the right track with DRP and compounding.

I'd also reiterate that good record keeping is paramount. This is another part and parcel of the investing business and is just as important as deciding which stock/s to hold (or sell) because eventually, you will have to account for CGT. Yeah, that's right, when the time comes the taxman will want his share too....
 
1k isn't enough per year to invest with. Invest with at least 10% of your income. If you don't feel comfortable putting that much into the stock market, put that money into a term deposit. The term deposit rates are low but that will be ok.

I don't like the idea of investing in stocks trading above their fair value (like most blue chips are) in order to get a dividend that's the same or lower than a term deposit. Some of the blue chips pay terrible dividends. Woolworths is a stand out. Their dividend is low and the stock is overvalued. Their executive management is good but their store management just came up the ranks by default from being there the longest so they tend to be self-entitled and lazy. This isn't the case in the newer stores but the older stores in their supermarket division are not that well run (significant out of stock percentages etc). I know 12 store managers and would only trust my money with two of them.
 
Thanks for all the reply's btw guys

I would invest the 1k on top of the dividends I received which would be pretty decent as I would have around 20-30k to start with, and also if I came into some money, say at tax time then I would put more then just the 1k. But at the end of the day, I would always be contributing minimum 1k + Dividends.

If I could have anywhere from 100-300k in there when I retire I would be more then happy. More would be better of course though!
 
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