Escape From Panic Selling - Think of DRIPs
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by: Guest
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These are short term fluctuations.
At that time there is a great pressure on selling and many a times an investor ends up selling a stock only to find the prices back to normal after some time.
DRIP
Dividend Reinvestment Plan or DRIP can be an effective strategy to avoid any panic selling.
Once one enrolls in this plan, any cash dividends paid by a company are used towards the purchase of more shares of the same stock or company.
This is best applicable to the situation of a long term investor.
While investors get more shares, at the same time they also tend to increase the value of their holdings and portfolios.
They are not bothered about short market movements.
Though there is no bar in selling them, but it is complicated, time consuming and costly.
Types of DRIPs
There are two types of DRIPs.
The second type is directly offered in house by brokers.
One major drawback with in house DRIPs is that these are available only in whole numbers.
On the other hand one can buy even partial shares under DRIPs offered by companies directly.
While with an in house broker, one can buy only one share, leaving a balance of $10, with companies, one can buy one and a half shares.
Only after that one can apply for enrollment.
Remember that all the companies do not have DRIPs.
Once bought, an investor needs to transfer these shares in his own name.
This involves payment of fees.
Once enrolled, whatever dividend one receives monthly or quarterly, gets automatically spent on the purchase of shares of that company.
If you are truly disturbed from panic selling, then think of DRIPs.
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