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General Finance Question – Dividend Reinvestment Plan

Q: Is DRIP Investor a good way to invest in specific stocks? Would this be a good way to teach a teenage family member about stocks and investing?

 

A: A Dividend Reinvestment Plan aka “DRIP” is a great way to increase the value of an investor’s stock investment as most DRIPs allow the investor to buy shares commission free and at a discount to the current share price. So as long as the investor is specifically focused on individual stock holdings this makes sense. It is a good way to teach a teenage family member about how DRIPs work with stocks.

 

However, there are several securities out there in the investment universe other than stocks such as bonds, debentures, rights or warrants, notes, limited partnership interests, exchange traded funds (ETFs), open-end mutual funds, closed-end funds, Real Estate Investment Trusts (REITS), Derivatives (options, futures), etc.

 

This can of course be intimidating to absorb all at once. It would be best to start with a basic understanding of stocks and bonds and then address each type of security one at a time.

 

Khan Academy has several short videos on these subject matters that are clear and easy to follow.  See the following link: https://www.khanacademy.org/

 


 

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