Today, I started my first ever automatic investing plan and signed up for my direct stock purchase plan with Merck (NYSE: MRK). Of course, I have made investing an integral part of my financial strategy, but not like this.
First, thanks to SogoInvest.com, you can easily set up automatic investing plans for as little as $1.00 per trade. Regular stock trades are only $1.50-$3.00 each, which is better than anything I have ever seen. There is also no minimum balance to open an account and for the first 90 days, trades are $1. This is awesome. Even if you do not trade a lot, the cheap commissions are key. For instance, say you have $100 to invest and you want to buy a couple of shares of MRK at $44/share. Well, excluding the fact that at most brokers you have to deposit anywhere from $500 to $2,500 just to open the account, you will be paying anywhere from $7 to $15 for the trade. So, if you wanted to put aside $100 each month and buy MRK, well, at the end of the year, you would have put aside $1,200 and paid $120 in commissions...that is 10% of your investment. If you can get those trades for say $1 each, then you are only down 1% of your investment. It really makes a difference in terms of being able to have all of your money go to investing rather than commissions. I only wish I heard about these guys sooner. Sogo's automatic investing plan is pretty sweet. You can schedule your trades in advance (daily, weekly, monthly) and you can specify how much total money you want to invest and how you want to spread it around (e.g., 100% in one stock or 50% each in 2 stocks). They also enable the purchase of fractional shares in the automatic investing plan, so you can get 100% invested in your stocks. For instance, if you put aside $100 and wanted to buy MRK at $44, you would have to only buy 2 shares and have $12 left over. Now, it would let you buy 2.2727 shares of MRK. Big difference over the long term. Anyway, I would check out SogoInvest if you have not opened a trading account or you want to switch. Personally, I have chosen to automatically invest in shares and fractional shares of NBG and SEB through my automatic investment program with Sogo.
The next thing I did was sign up for direct investment purchase plan with Merck. I set up three accounts - 1 for me and 1 for each of my 2 daughters. Basically, direct purchase plans (DPP) allow you to directly invest in the company's stock with out going through an online or regular broker. Typically, the fees are less and they make it very attractive to get involved. For instance, MRK's plan is a $5 set up fee, $2 for each deposit, and $0.01/share commission when purchasing. There is a $5-$10 fee when you want to sell stock. There is no minimum balance as long as you agree to commit $50/mo. via an automated withdrawl each month. You can also come up with $350 upfront. All funds are used for investing in the stock (even in fractional shares) and all dividends are fully reinvested (at your discretion) in more shares of the company. Fees by companies vary. For instance, Quanex (NYSE: NX) has a $15 set up fee and no fees for deposits, purchases, or reinvestments. It's totally free to buy shares, although there is a $50/mo. minimum required investment. Wells Fargo (NYSE: WFC), for instance, has some fees ($10 to set up, $1 per deposit, $0.03/share to buy), but their monthly minimum automatic investment is $25.00.
So, why the sudden motivation to start this?
Well, first, they say the best way to save and build wealth for yourself is to get into the habit of saving and maintain the discipline to put aside even if just a little bit each month. Whether it is $20 or $100 or whatever, you should just do it or find a way to do it. And, while that is not easy, the trick is, where do you put it.
Obviously, if it is 'savings', you probably want it to be in something stable and consistent, and not things that are volatile. Besides, this is for the long term or for an emergency or to buy a house one day and you want to have some confidence in the future value of these savings. Unfortunately, most people opt to put money in savings accounts or bank CDs. Not for me.
Even if you are totally risk averse and want 'guaranteed' (note that nothing is guaranteed) return, you can do a lot better putting your money into a bond fund of some sort.
Why do I say this, banks are not just necessary evils, they are thieves. I mean, not only do we all just give them our money, but then they use our money to make money for themselves....and charge us fees for doing so!!! Talk about the double dip, I mean really. Actually a triple dip...because more often than not, they do not give you anything back in return for you giving them your money. Sometimes, you get interest, but it is very small and there are minimum balances, etc. I just don't believe it.
Wait a second, Terence, you say....but, don't you own stock in a bank (e.g., National Bank of Greece, NYSE: NBG).
Actually, I am glad you brought that up. Banks are thieves and therefore can make a lot of money and can be good investments, just not the best place to park your money.
So, ok, I answered your question where not to park your money, so natuarally, where do you park it? For the automatic investment plans, I have opted to enlist in those offered by MRK, perhaps WFC, and maybe NX. I might do WFC in the next couple of months, but will start with MRK now. MRK's DPP Web Site & Information.
I chose MRK because I believe in the company's stability and ability to deliver shareholder value over the long term. I keep pretty good track of my finances via Quicken, but for these accounts, I am not going to record them as an asset. Basically, it is going to be like I spent the money and it disappears. Of course, I know I'll have them, but I won't look at them every day. I think this is part of the discipline that will make it easier to make this strategy successful. I have my contributions clearly delineated so I can track contributions to the DPP, but I will not actually see its performance day to day.
Anyway, back to the original point, "Why MRK?". Well, again, I believe in their long term ability to drive shareholder value through both price appreciations and dividend yield. Currenty yield (or payout) is about 3.5% - the dividends alone beats just about any savings or money market account you can get at a bank. If you invested $100 in MRK back in 1984-2004 and simply re-invested the dividends and did not buy any more along the way, it would be worth over $2,200 today. Compare to a 5% CD during th esame time period and your $100 would be worth $265. If you go back even further to the 1970s and earlier, the MRK return is even more impressive.
That is the goal here. Not only to just have it there 20, 30, 40 years from now - but to continually add to the position and re-invest all dividends to purchase more shares. Maybe I'll have enough shares to be on the board of MRK - that'd be cool.
The other thing that really opened my eyes to this strategy was an article I read about some of the wealthiest families in the country. Most of these people you have not heard of, but they are worth tens of millions if not hundreds of millions of dollars. How did they do it? Well, they inherited it in many cases, but these people that analyzed the holdings of these families. Large blocks of their worth was tied up in the big name stocks, blue chip stocks - GE, MRK, IBM, JNJ (Johnson & Johnson), KO (Coke), AXP (American Express). Strong histories and operations coupled with strong dividend payouts that simply got reinvested in more shares of the stock.
So, that is where I am at. I probably won't make tens of millions or hundreds of millions of dollars during my life. I might, but probably not. But, I want to see if things I do today can create that opportunity for my daughters and perhaps their children as well to be in that position. No promises, but automatically investing, re-investing dividends, & taking advantage of direct purchase plans with their lower fees & ease of effectively investing in small incremental amounts - these are all steps in the right direction to building that legacy.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment