My first investment vehichle: DRIPs (Part 1)

These are currently the only investments that I have at the moment which I can actually touch and use before I turn 59 1/2. Although, I still certainly consider them long-term investments. As I posted previously, I started 2 DRIPs while in graduate school. I did so because they allowed me to buy fractional shares of large companies. So, for someone with little cash flow like a grad student, it was an easy way to start saving for the future that would hopefully produce better results than a savings account or CD in the long run.

So, what exactly is a DRIP? A Dividend ReInvestment Plan allows an investor to buy fractional shares of a company through the reinvestment of dividends with no commissions and usually the option to make cash purchases of fractional shares as well (hopefully with little or no commissions on the trades). To start a DRIP you normally have to purchase at least a single share of the particular stock through a brokerage to be eligible to participate in a DRIP. I have not personally used this method.

In my case, both of the DRIPs that I participate in are managed by ComputerShare (previously Equiserve). The ComputerShare allows you to directly enroll if you are not currently a shareholder with a minimum initial investment for some plans ($500 to start a Pfizer plan). Kimberly Clark currently requires you to already be a shareholder, so you would have to go to a brokerage. I circumvented this by using a service provided by The Moneypaper. If you become a member, they will provide you with the means of enrolling in certain DRIPs. I think it ended up costing me about $35-$40 in fees to enroll in the Kimberly Clark DRIP back in 2001. For me, this was easier than having to deal with a brokerage and I believe the fees ended up being similar if not better.

So, how did I end up choosing Kimberly Clark and Pfizer. Well, the biggest factor in terms of how DRIPs are run was that they both had reasonable fees. And to me a reasonable fee is FREE.

1. Automatic Investment Fee : $0
2. Optional Cash Purchase Fee: $0
3. Dividend Reinvestment Fee: $0

Additionally, they both have decent sales fees. Kimberly Clark charges 5% of the total sale OR $10 maximum and Pfizer charges a flat $15. Since I plan on keeping both of these plans long-term and selling huge chunks or all the my shares at once, these fees will have negligible effects on my sales.

An example of a company that I might be interested in, but their plan sucks in terms of fees is IBM.

1. Initial Setup Fee: $15
2. Automatic Investment Fee: $1
3. Optional Cash Purchase Fee: $5
4. Dividend Reinvestment Fee: 2% up to max $3

They might as well tack on a fee for wiping your butt. I just don't see the sense in investing in a plan like that if you're trying to use small amounts of cash (say $25-$100 per month) to invest. In this case, if you autoinvested $100 per month, you would end up paying 6% in fees on each cash purchase. You'd have to make a helluva return to make that up. Granted, if you're investing a lot more money per month, it wouldn't matter as much. But, I would still prefer a plan without such headaches.

The other big factor in choosing the 2 companies were that they are both large and well-known.

I initially sought out the Kimberly Clark DRIP because of a job interview I had with them after graduating from undergrad (even though I turned down their offer and went to grad school). I was simply impressed with how well they took care of their employees. If I hadn't of gotten such a good offer to go to grad school, I might be in Wisconsin now helping to make diapers.

I chose Pfizer for diversification (pharmaceuticals) and their long track record as a strong company.

I wasn't looking to get rich quick off of either of these companies. So, I didn't sweat the details of each company like insider transactions and analyst opinions. I basically went with the fact that they were both long-running companies and leaders in their respective industries.

Starting out with no money in school

I first started reading about investing at The Motley Fool in the late 90's. I occasionally read it now, but that's where I initially learned about Index Funds, DRIP's, Roth IRA's, and discount brokerage accounts. They're a lot heavier on the advertising now, and I think they force to login to read some of their articles. But, they're still a good source of information.

So, while I was in grad school I started a Roth IRA account with Scottrade (which I still have and recommend because I've never had a problem with my account, they have offices everywhere, and they have low trade commissions at$7) and put money into it whenever I could. That was pretty hard to do living off my stipend as a research assistant, but I managed to invest $3000 over three years. Before I started my job at the end of 2003, my Roth IRA was worth a whopping $3114 which I was pretty happy with considering that some of my investments hadn't faired so well over the years. For the curious, I was invested in the following at the time:

1. Ebay - 11 shares
2. Home Depot - 11 shares
3. Kroger - 20 shares
4. MWave - 82 shares (not the same as the online retailer, they made circuit cards)
5. MDY - 6 shares
6. Sun - 131 shares

From my experiences with those stocks (excluding the one "spider" - MDY), I will never buy into a grocery chain again (Kroger) because I was not aware of their super-thin margins, I will be more wary of tech stocks like Sun Microsystems. And my biggest learning experience out of those stocks is that I will never pick a stock based on someone's "hot tip". I think it was an email that I got that made me aware of MWave which was around $9/share when I originally bought it and of course had had outstanding performance prior to my buy (like most tech stocks before the bubble burst in 2001). Before I finally sold it, it was worth less that $1/share. Ughh.

The rest of my investments were in DRIPs (Dividend Reinvestment Plans) which I still have. In Dec 2003 I had the following:

1. Kimberly Clark - 9.102 shares
2. Pfizer - 17.481 shares

I still contribute monthly to my Pfizer DRIP and occasionally to my Kimberly Clark DRIP. This is mostly because Pfizer has an auto-debiting system in place whereas Kimberly Clark requires me to write a check every month and even then they are only deposited on certain dates every few months.

Well this is basically where I was before I started my career 3 years ago.

About Me

So, I'm a 30 year old electrical engineer living in Denver...

I started my career 3 years ago after finishing my Masters in Computer Engineering. During graduate school I had managed to build a Roth IRA account up to a little over $4000. But, I was in debt to the tune of about $32K in student loans. According to my trusty Quicken account, my total net worth in December 2003 was -$29K. But, with my new job I had the means to start paying that off and begin saving for retirement. So, at the age of 27 I started my "real" savings for retirement. During my few years in graduate school, I had managed to sock away some money and invest somewhat foolishly now that I look back on it. But, hindsight is always 20/20, right?

After my continuing efforts to grow my own knowledge in investing, reading countless blogs, and religiously tracking my finances in Quicken, I've decided to start this blog to hopefully help others with similar issues that I've tackled along the way.