Dividend Investing: Pros and Cons of DRIPS (Dividend Reinvestment Plans)

Dividend Investing: Pros and Cons of DRIPS (Dividend Reinvestment Plans)
People often ask:
- What are the pros and cons of drips?
- Should I invest in a drip?
- How do Drips work?
Dividend Investing: Pros and Cons of Drip Investing:
Drips stands for Dividend Reinvestment plan. Drips are becoming highly popular among investors, and offer many positive benefits, but before you engage in this invest strategy it’s important to know the pros and cons.
If you don’t know how a dividend reinvestment plan works, no worries, because it’s fairly simple to explain. Normally when an investor receives a dividend payment they receive that payment in form of cash.
Complete Dividend Investing Playlist
• • Dividend Investing
• • Investing In The Stock...
In Drip arrangement, instead of receiving cash, the investor receives additional shares of a particular company’s stock.
So instead of receiving $4 in cash from a McDonalds stock, the dividend payment is automatically reinvested to purchase additional shares of McDonalds stock.
In the Drip arrangement it is possible to purchase fractional shares of stock.
Pros
1. (Potential for faster compounding interest) - New cash influxes from dividend payments are being automatically put to work. Your money will not sit idle in the account, because this type of plan generally allows one to purchase partial shares of a company’s stock.
2. Few barriers to entry concerning to the DRIP - Generally Drips’ allow an investor to enroll in the plan even if they only own one share of stock. This allows investors at all levels to participate in the benefit the drip.
3. Generally there are no transaction costs related to DRIPS. Under most circumstances the additional stock reinvestments under the plan are either free or very minimal.
4. The potential to purchase shares at discount. Some companies may allow investors to purchase shares at a small discount if they are enrolled in the Drip. The discount may be as low as 1% and high as 10% depending on the company.
5. Low maintenance investing - You do not to continually think about how to reinvest your dividends. It will all be taken care for you
Cons
1. Loss of flexibility. With the same shares being repurchased over and over again in your portfolio lack of diversification may eventually become an issue in your portfolio. Beyond that, your investment becomes less liquid. To get out of a DRIP arrangement or sale a stock within the drip plan may take additional time and you will not be able to sale your position as easily if you really need to.
2. No physical cash, but taxed on the dividends - In the eyes of the IRS even though you did not receive your dividend payment in the form of cash it is still considered taxable income to you. Reinvested dividends are taxed just like any other dividend. Therefore, if you planning to reinvest all of your dividends through a drip realize that when you go to file your tax return you going to have to pay taxes on the amount of dividends you received for the year.
3. Drip systems can lead to more complicated record keeping for taxes. Brokerage companies often do not keep track of a person’s stock basis once it enters to a drip. As an investor it is very important that you maintain good records of all the dividends reinvestments, because it is going to affect your stocks cost basis for tax purposes.
4. Drips are not suitable for short-term investors. If short-term investing is something you are into then I would not recommend doing a DRIP. Infect you may not be able to.
5. Your dividends may not be receiving highest and best use - Sometimes purchasing additional shares of company stock might not make sense if the company is not doing well. Therefore by investing in the drip you have to consider what other investment choices you are giving.
Summary: In summary drips can be a great investing tool for long-term investors. Drips can minimize transaction costs. It may allow investors to purchase stocks at a discount, and allow even the smallest of investors to participate just by owning one of stock. Having your dividends automatically reinvested will further fuel the compounding interest growth of an investor’s portfolio but remember a drip comes with a price.
The price is the investments become less liquid. Your dividends may not be receiving highest and best use. Tax record keeping becomes more complicated, and an investor will have to pay tax on the reinvested dividends even though they did not receive the money.
My Website: Moneyandlifetv.com
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[@MoneyandLifeTV]

***Do you think DRIPS are a good investing strategy ,or bad strategy? Why or why not? ***

[@chewie1355]

How about having dividends equities using the Drip in Roth and/Or HSA plans? Does that reduce the Cons?

[@jeffreystern5886]

If you invest through a large well known company... there's no issues with cost basis information.

[@guywithaname5408]

They seem ideal for young people with a few grand in savings and no business ambitions. A 20-year-old can put a few grand into a DRIP with an ETF or index fund and it will potentially be worth hundreds of thousands after a couple of decades.

[@jeffreystern5886]

It's the best...never withdraw the cash earned from dividends. Reinvest EVERYTHING. Over time... your wealth will grow and grow. Especially do this in any Roth you invest in. Growth tax free plus you are constantly buying more shares w/out remembering to do so. Just do it.

[@user-angelicaddlos]

Cheers for the Video! Apologies for chiming in, I am interested in your initial thoughts. Have you heard the talk about - Rozardner Flying Bird Reality (google it)? It is a smashing one off guide for learning a simple option trading secret to win big minus the hard work. Ive heard some pretty good things about it and my friend Sam after a lifetime of fighting got great success with it.

[@deirdre581]

This was was done with Exxon stock I received as a gift when I was. A baby. Over 30 years later, I have over 200 shares!

[@MoneyandLifeTV]

Wow Dee Ann that is absolutely amazing. Thanks for sharing this. That is truly the power of this strategy. That is worth some substantial money now.

[@Nycuberdriver]

Did you pay taxes on that drip.

[@johnholfelder6724]

Same here my dad did it for me when I was a baby. I did the same with my kids. Almost a family tradition. Lol

[@mrsmorriskitchen6238]

@@johnholfelder6724 I just had a baby recently and I'm interested in doing the same. What type of brokerage account did you open for ur children? And where did u open it. Would appreciate if you can share. Thank you

[@johnholfelder6724]

mrsmorris kitchen I opened it as a custodial account. You buy stock under the minors SSN# then when they’re over 18 you turn it over to them. It allows you to get them dividend paying stocks without you being taxed for it. I did it with less than 100 shares so the amounts were small anyway, but it made them aware of stock investing. It’s surprising how many people reach adulthood and see stocks as something only for the very rich.

[@withtheshitzpodcast416]

The best tip was you might be reinvesting into the stock as its excellarating up which means you could’ve used that cash to put into another stock that may have been in a dip

[@lilwa2]

Was Exactly looking for an article like That ! Thank you

[@TruFinancials]

Great tips on drips. I love the idea of getting those dividends, but as you mentioned there is a chance you will be missing out on better rates of return. As long as yyou're investing for the future you are winnigng.

[@MoneyandLifeTV]

Thanks Dennis. Totally agree. Congrats on hitting 3K!

[@Practice_Kindness-1st]

Wow! I had no idea that companies would give you a discount for DRIPS! Sweet! I've been a holder of aapl since 2012 (before the split) and have received almost 31 extra shares because of the reinvestment program. Nothing better than a not so cheap freebie!

[@MoneyandLifeTV]

Wow 31 free shares is great! Nice job. Illustrates the power of the DRIP

[@MoneyandLifeTV]

Thanks for watching, and for the continued support. My overall opinion on DRIPS is they are good if you feel you can identify companies that will likely be around 30 - 40 years from now. Most people I speak to have positive things to say about DRIPs and would recommend them. For myself personally, I'm planning to place some of my holdings in DRIPs and leave others out so I have cash to pay the taxes, and investment choice flexibility. If you are looking to invest for 5 to 10 years or more I think DRIPs could be a beneficial investment strategy.

[@geoffdearth7360]

I have had 2 DRIPs for 20+ years and I believe that if more people had these along with 401ks they would be better off.

[@MoneyandLifeTV]

I couldn't agree more Geoff, thanks for commenting :)

[@YT_Watchers]

Are you a millionaire now?

[@jennpaul9871]

DRIPs have been working out great for me. Buy the initial stock from Temper of the Times and then they transfer it to the company to enroll in the DRIP. Takes a little time to set it up this way, but I believe you avoid a lot of fees that something like TD ameritrade or robinhood would charge. There are still potential commissions and fees when you sell, but they are minimized

[@PlayafromtheHimalayas]

Great breakdown. I think I'm going to forego the DRIP and just take the dividends and put in a traditional IRA to offset taxes.

[@Unknown2030U]

Yessss Diablo 2. I replay it every couple years!!!

[@MoneyandLifeTV]

Unknown, happy to hear you enjoyed the EasterEgg. Diablo 2 is one my top 5 list of favorite games of all time. I can't fathom how many hours I invested killing the devil and magicfinding haha.

[@darrenttoo]

Hi! I'm late to the party, but I just now turned on drip investing for robinhood. I also have a portfolio with M1. But, I googled and found that robinhood and m1 both keep track of what price on what date I purchased into the stock and all drips. Do i still need to adhere to con #3 and keep track of all this info?

[@rosasardon823]

Man, great summary! congrats

[@patw.6567]

thanks for telling us the good and bad .

[@MoneyandLifeTV]

That is what i'm here for boss :)

[@MrJAPAN1911]

I recently subscribed to your channel and the information you're providing has been very valuable. Thank you! What is the best way to identify if a company offers a discount for reinvesting dividends?

[@user-cc8qj9ww5j]

So this is direct purchase thru co? If thru a brokerage then your download for taxes would show the record of money put back into that stock. Is this correct?

[@moneyindabank]

It's probably better to take the dividend, add more money and buy full shares. Like a manual drip instead of automatic.

[@MoneyandLifeTV]

I'm a big fan of whole shares as well, but that is just me.

[@lawrencedelong9748]

This Marine loves your video to explain the Pros and Cons of DRIPS.... OH YEA !

[@silvacarloss]

Great video ! Thanks a lot 👏👏👏 This DRIP is very good option for me in my brokerage account, just a check and it’s working well. But I’m writing down all the records as per your advice 👍

[@MoneyandLifeTV]

Awesome! How many investments do you currently have setup on the drip? Good work on keeping track of your reinvestments. As accountant you make me very proud :)

[@silvacarloss]

Money and Life TV stocks and REIT portfolio. All set with DRIP check mark 😊

[@tommclaren812]

I'm sorry if you covered it, but is it possible to transfer a dividend or drip to a separate account? Say earning them in an RESP and having them deposited to a TFSA?

[@Liam-B]

@money and life tv What about beginning with DRIP's in say 10 established companies? Assuming the books are kept properly.

[@leospeeds500]

Thank you for making a such an informative video!

[@MoneyandLifeTV]

Thanks for checking it out Leonel, really glad you enjoyed it.

[@MoneyandLifeTV]

Investing playlists: Complete Dividend Investing Playlist •kzbin.info?list... • kzbin.info?list...

[@Eastbaypisces]

so the company u invested in will still notifiy you when your dividend is coming to you and that its going back into the stock right w the DRIP plan? also how will u know when u've got enough dividends reinvested into the company to get an additional share? will they let u know ?

[@gavilan79er]

Hey, when the dividends are reinvested are they going to be bought at the next best price? Aren’t you losing that profit if the stock is trading higher than when you bought it? Is this what you mention as dollar cost averaging?? Thx in advance 🤙

[@bassage13]

Wouldn't it be a waste of money to have a DRIP setup for a stock that is overpriced at the moment? It seems like it would be better to keep the dividends and put them into something else, or save it until that stock falls to a better price. I'm new to this, so I'm still learning.

[@MoneyandLifeTV]

Hi Bassage, even if you are new to investing you make a great point. The market has been in a bull market for 10 years now. It is almost the longest bull market of all time. Like you, I like having control of where to invest my dividends so I usually keep them out of drips. At the moment I do not have anything in a DRIP for that very reason. I like to know i'm getting the highest and best use of my dividends. Timing the market is very challenging though. Personally, every-time I try to time the market it seems like I end up losing money or miss out on a good opportunity. I invest using the philosophy of dollar cost averaging so I no longer have to worry about constantly trying to time the market. By doing this I've been able to make better investment decisions and minimize losses. Don't worry about being new to investing. I learn more every year about investing. Always new things to learn. Good judgement though will come with time and experience.

[@Practice_Kindness-1st]

Good question, bassage13!

[@johnholfelder6724]

Doesn’t a DRIP automatically dollar cost average for you? The video even says DRIPS are for the long haul.

[@jamesniesuchouski9373]

Good point... if you just keep buying stock no matter what the price is... say in etf it’s called dollar cost averaging.. essentially buying whether it’s up or down cause overtime it averages out and over long term you will make money

[@kingdavig]

@@johnholfelder6724 correct

[@acn97]

Why wouldnt schwab be able to automatically keep track of the cost basis of the reinvested dividend? Isnt it all automated?

[@Jayhawk4848]

Great video 👍

[@josephzhang2492]

In New Zealand, any dividend received (or has a DRIP plan) is after tax P.S. New Zealand requires financial products to pay tax before you can do anything. Also the dividend has a flat tax (no matter what your marginal tax rate)

[@sessroma9897]

Do Etfs have drip? Can we reinvest dividends with ETFs?

[@Master_LaSon]

I was focused and paying attention, wanting to learn and make investments until you dropped D2... But now IDC about DRIPs, Im headed to see Elzix and gamble away my coin trying to roll an SOJ FTW ;)

[@MoneyandLifeTV]

Haha SOJ the TRUE currency.

[@sunilmathew349]

DRIP cannot be taxed within a ROTH IRA though, right ?

[@MoneyandLifeTV]

Correct :)

[@LS-dp2gs]

@@MoneyandLifeTV how about regular IRA or 401 k?

[@dontplaywithgod2064]

Thank you.

[@MoneyandLifeTV]

Glad you enjoyed the video :)

[@andyx7013]

If I have a drip and I plan to buy more shares of a stock outside of what gets reinvested, how would I really be able to keep track of my cost basis. In my current situation, I invest weekly in a couple different stocks. It seems like a drip is better if you save up money and then invest a set amount and leave it.

[@MoneyandLifeTV]

Agreed, it is totally a set it and forget it type of plan.

[@malvizar85]

I have to pay taxes on dividends in a regular brokerage account even if I don’t sell the stock? I want to buy VTSAX in my brokerage account and set up dividend reinvestment.

[@phonetechreviews5352]

Thanks for sharing

[@MoneyandLifeTV]

Anytime, thanks Phone and Tech Reviews :)

[@EvangelistRBColbert]

I don't like the tax part. Paying taxes on dividends that you actually didn't receive in your hands. LOL

[@MoneyandLifeTV]

RB Colbert, I couldn't agree more :) I feel your pain.

[@johnholfelder6724]

I agree, you’re buying the stock with taxed money, if it goes south the government doesn’t make you whole. If you’re a winner they want a piece of the action. Then again, I’d like to see a repeal of the 16th amendment and go to some sort of a consumption tax. Lol

[@1pyroace1]

It’s insane

[@wmbasscommanders5855]

You can start a drip in a Roth IRA, then the dividends are not taxed and if you wait till your retirement age, they will also not be taxed at all. Also, you can invest in a Dividend Growth stocks, and then switch to a high dividend yield stock like Exxon (9%) when you retire or just decide to take the dividends (taxed before 60yo) that way. Keep in mind. You will pay invome taxes and a 10% penalty if you cash dividends before retirement. But as soon as you retire you will have a massive dividend portfolio to bring in tax free income

[@wmbasscommanders5855]

You can start a drip in a Roth IRA, then the dividends are not taxed and if you wait till your retirement age, they will also not be taxed at all. Also, you can invest in a Dividend Growth stocks, and then switch to a high dividend yield stock like Exxon (9%) when you retire or just decide to take the dividends (taxed before 60yo) that way. Keep in mind. You will pay invome taxes and a 10% penalty if you cash dividends before retirement. But as soon as you retire you will have a massive dividend portfolio to bring in tax free income

[@hypnotic72]

Thanks for the video, I appreciate the information

[@MoneyandLifeTV]

My pleasure! Thanks :)

[@girlafraid4045]

great vid. little confused on why DRIP would effect liquidating the stock. I can see maybe not being able to sell the partial shares, but beyond that why would take more than just a sell order? can you or anyone explain more on this?

[@YT_Watchers]

Not a FA - but I think that this means if you bought a stock at $3 dollars and that stock went to $5 and you have DRIP enabled. Then this will bring up your $3 average, effectively raising your average... At least that is my guess. Good question.

[@fuzzylumpkin8030]

Good info thanks

[@MoneyandLifeTV]

No problem! Thanks Fuzzy!

[@adonishernandez6361]

Great video, thanks. My question on the taxes is if you are enrolled on a DRIP program do you pay taxes on the dividend every year or only when you sell?

[@MoneyandLifeTV]

Hi Adonis, great question. Yes, you will have to pay taxes every single year. Since you are receiving dividend income throughout the year, regardless if you receive it in the form of "cash" or additional "shares" tax may be due on this when you file your tax return.

[@adonishernandez6361]

Thank you.

[@him2925]

Thanks for a good/new info to me, do you suggest AT&T to buy ? Do you know how much Dividend they pay now??

[@MoneyandLifeTV]

Hi Husam thanks for watching. Currently AT&T has about a 6% annual yield and pays about $2 in dividends (annually) per share. You can find out more here on yahoo finance. finance.yahoo.com/quote/T?p=T About 5% of my total portfolio is invested in AT&T and i'm going to limit it to that for the time being. I think AT&T has potential, but they need to figure out how to increase their revenues considering people are moving away from cable tv services to watch hulu, netflix and other streaming options. The yield is nice on AT&T, but I wouldn't expect much capital appreciation at this point until they figure out to adapt their business to this new economic environment. We are still waiting to see what is going to happen with this time warner deal. Those are things to consider when deciding to invest in AT&T. You might also look at Verizon. They seem to be a stronger player at the moment in this industry. I own a little of both (AT&T and Horizon).

[@him2925]

Awesome, Happy Sunday

[@Richb711]

Well if you don't plan on selling liquidity isn't a problem. I also use TD Ameritrade I know you can click on your stock and it will show you all the share purchases including drips. But i don't know if there is a limit of on the no of transactions that can be viewed. Could you do a video on using the stock screener?

[@MoneyandLifeTV]

Hi Richard, thanks for watching and for leaving a comment. To be honest off the top of my head i'm not sure if there is a limit either. I will certainly consider doing a video on stock screen especially if I have even more people request it. Thanks!

[@jcrispy8181]

What happens you buy the same stock say 10 times just for an example , and your getting dividends reivested? How do you report the cost basis over multiple buys?

[@MoneyandLifeTV]

Great question J Crispy, fortunately you do not have to report your cost basis unless you were going to sell the shares. The company should help you track the purchases even if they are fractional shares. Nothing you would need to track manually.But do keep those records saved where you can easily access them if you want to sell.

[@kalamelliel]

What happens to the partial shares you buy with drip plan, do they get combined to become a whole share?

[@MoneyandLifeTV]

Thanks for asking, and the answer is yes.

[@vanessabarragan680]

Question about reinvested dividends..I’ve been investing in AAPL since 2017 (through employee purchase plan) and getting dividends + being reinvested. I never reported those dividend gains bc I had no idea I was receiving them and didn’t know how stocks work. Does the IRS automatically tax me for those dividends for the year even though they were never reported on my tax returns?? How does that work?? Thanks for your time!

[@MoneyandLifeTV]

Hi Vanessa great question. If that investment option is part of your 401(K) or similar retirement plan then those dividends would avoid taxation until the day arrives when you begin to distribute the money. If it was "taxable" or outside of a retirement plan you should have received a tax form of some sort that would have reported the total reinvested dividends earned. I suspect this is part of your company's retirement plan and you have nothing to worry about. This video is somewhat older now, but gives a break down of how different investment accounts work. kzbin.info/www/bejne/fKC6q6CAqZqAaaM Hope this helps.

[@vanessabarragan680]

Money and Life TV great! Makes sense. Thank you so much!

[@nickfifield1]

Are there any dividend etfs where the dividends are auto reinvested in the etf ? Also, which U.K. platforms offer a free DRIP service ?

[@MoneyandLifeTV]

Hi Nick, I believe through a platform like M-1 finance you would be able to setup some sort of drip system with etfs. I do not know of any specifically, but I'm sure there has to be a way. As far ask UK platforms go I am not familiar with any specifically but you might want to check out this article for ideas: www.forbes.com/uk/advisor/investing/best-investment-apps/

[@ListenWell]

Great rudimentary video!

[@MoneyandLifeTV]

Thanks listen well! Really glad you enjoyed it.

[@drftr7735]

if i have drip and stop it for a year but i still invest in stocks do i get to keep the drip value? i don't understand i need help edit: what i meant is that my dad is setting up an account where annually he is gonna buy 10k worth of 5 stocks for 20 years should he also use drip( he's retiring in 20 yrs and wants to have fun money before he dies)

[@benyaminmiller5504]

Yes ofc u keep what u own

[@freE20121]

Love your videos. Thanks for sharing your knowledge. If you buy your stock for a price of $40 and you have your dividends reinvested in the same stocks for 5 years and each year the stock price goes up so your new shares price also goes up. Does this mean your YOC (Yield On Cost) is lower? Is your basic cost would be the average of your first purchase plus all the additional new share prices for the past 5 years? Thanks.

[@MoneyandLifeTV]

Hi Andy, yes, that is correct. Your average cost basis would vary based on the share price and it would be the accumulated average cost basis. This video I produced better explains yield on cost: kzbin.info/www/bejne/gGaQhJisqbmobrc

[@freE20121]

@@MoneyandLifeTV Thanks so much for your quick response. I am about to watch your other video that you recommended. So technically cost basic information can become complicated as you make additional purchases of existing stock either through direct purchases or DRIP. We may choose long-term investment to take advantage of the compound interest but if the stock is overvalue then we should sell it because the final basic cost is not low anymore. So we should pick a stock that is growing fast but not so fast as an example MSFT is growing faster than the dividend growth so if one wants to create a dividend portfolio then MSFT is not an ideal stock to invest with. Am I wrong? Thanks so much.

[@Cajunland5150]

I'm new to investing as far as the stock market...example: I own 40 shares of Microsoft and I'm enrolled in the "drip" plan, when Microsoft pays out and auto reinvest the dividends , how am I benefiting at all if the company stock always goes up and the div. payout is the same every time?

[@MoneyandLifeTV]

Great question, their dividends do increase over time. As long as the stock appreciates more than your cost basis your total value of your investment will continue to rise. The dividend they pay is very very small compared to the amount of growth/price appreciation you would normally get from this investment. For example there dividend is like 1%, but in year the value of your shares might increase 20 - 40% in a single year. I currently have just under a 100% gain on my Microsoft stock.

[@samehmikhail5039]

Do I need to know my base price for every fraction of DRIP purchased

[@MoneyandLifeTV]

Hi Sameh, good question. The company should help you keep track of that, however, you should look at it routinely to make sure it is accurate. If you were going to sell stock or switch brokers it would be very important that you kept good cost basis records.

[@freddiebutler3653]

I like drip because ,I have a goal set to build my dividend investment to where I can collect 2000 to $2500 thousands ,once I chieve that then I will have it to go back into my account and either purchase other stocks are going on a wonderful vacation.

[@MoneyandLifeTV]

Freddie! Hows it going brother? I like the idea of my investments taking care of themselves while on vacation. I like how you put that. I admire your goal. My long-term dividend goal is $5,000 - $10,000 a month by age 65. I think we can hit it if I work my butt off and make extra income at my job and through KZbin, but we shall see. I want a portfolio that will never run out of money so I can donate a good chunk of it when I pass away. Hopefully all for a good cause.

[@Jay-un2zc]

What would the average amount of dividend stock be required to earn 2k a month from dividends?that seems like it would need to be a crazy amount invested!nothing wrong with goals!

[@candyluna2929]

Abolish the irs and the federal bank...that would solve a lot. Income taxes arent even legal

[@MoneyandLifeTV]

You probably know this already, but the IRS was established about 3 years after the Fed was put in place. Coincidence? I think not.

[@_baller]

DRIPs shouldn't be taxed they should remove that

[@ricorodriguez3579]

I don't know mate, if they don't tax it now they're gonna want to set the cost basis to $0.00 and charge taxes once sold. They're gonna get you anyways.

[@georgimandzhukov5647]

Put them in an ira and all your tax headaches will go away.

[@danielpoirier6333]

Personally, I go about 50/50. Drip the stocks that are forever holdings and keep the others making cash for other investment opportunities.

[@MoneyandLifeTV]

I like the sound of that Daniel. Nice strategy.

[@santiagoaguilar6241]

Wow...thanks for the info. But don't you still have to pay taxes on the dividends regardless?

[@MoneyandLifeTV]

Santiago, hows it going man? Thanks for watching and for leaving a comment. The answer to your questions is "Yes" taxes are always involved except if the dividend paying investments are held within a Roth IRA retirement account.

[@RainRedMusic]

Do you have a good link to a spreadsheet I can use to start tracking these things?

[@teryrnon5774]

I know this is a late reply, but there is a spreadsheet that I like using that helps me alot in keeping track of all the information with little input required and auto calculates and fills in the rest of the information. kzbin.info/www/bejne/rJOugqWtdr-pqrM Hope you find this as useful as I have.

[@RealLifeMoney]

Less maintenance so reinstall old video games! lmao I'm not against that at all Mike. I like how you go over that there are pros and cons. One of the cons I don't like is that you still pay taxes on those dividends even when you didn't obtain extra money. To avoid, this strategy is excellent for IRAs tho ;)

[@MoneyandLifeTV]

Sometimes I just can't help, but to put video game footage in my boring financial videos :) Have to keep um fresh. A+ point on Drips for IRAs. That would be the most advantageous way to use it in my opinion. You are getting so close to 1,000. keep it up and great work.

[@dddoda]

How hard is it to sell 1/4 of a share in trading?

[@inconvenientexistenlism]

Regarding TAXES, how do taxing dividends work with a traditional IRA and Roth IRA (e.g., pay taxes after retirement for traditional or before for Roth)? Tax filing is near, is there any benefit or difference when earning dividends with a traditional or Roth IRA account?

[@MoneyandLifeTV]

Hi Jason, love your question man. Dividends paid within a Roth IRA are 100% tax free when you distribute them, while those paid in a traditional IRA are not. From a taxation standpoint there are some large differences and that is one of them. I prefer Roth personally. I would rather pay tax now, and get the money out tax free when I retire. My wife and I both max out our Roth IRAs every year. The goal is to eventually have an annual tax free dividend income from our roths of $20,000 to $40,000 per year. Hope that helps.

[@inconvenientexistenlism]

@@MoneyandLifeTV You said, "Roth IRA are 100% tax free when you distribute them." So, in other words, taxes still work the same way as any other ordinary income for the year? I know that traditional IRA you only pay taxes after you retired and pulled that money out, and Roth IRA you pay upfront for that year and pay none when retired and pulled the money out....but I was wonder if there were any benefits at all, e.g., tax deduction during tax filing of the current year? One top comment from this video kzbin.info/www/bejne/d36sgGuGg7igjJY (Michael Jay - Value Investing) claims that if you invest in real estate with dividends earning, you should always use an IRA to avoid being taxed higher?

[@inconvenientexistenlism]

​@@MoneyandLifeTV Are all dividends taxed as ordinary income, or is it just for real estate dividends? (Because if it's the former, I'm going to move all my dividends-paying stocks and ETFs to my Roth IRA. If it's the latter, I"m only going to move all my real estate stocks, ETFs, and REITs over to my Roth IRA.)

[@MoneyandLifeTV]

Hi Jason, it is a bit complex but with a roth IRa you will get no immediate tax deduction, but when you retire later on and start to pull the money out it comes out tax free. So in a sense it means your dividends are coming out tax free if you think about it. In a traditional IRA you get an immediate tax deduction now, but later on when you retire you pay taxes at ordinary income rates. There is no special capital gain rate treatment in a traditional IRA. All the money in the account including the dividends earned, etc are taxed at ordinary income rates. This is why I don't like a traditional IRA for dividend investing purposes. Ideally yes,, if you are investing for income you should probably do as much of it as possible in a Roth IRA or traditional IRA and not in a standard brokerage to pay the least amount of tax throughout your lifetime on these investments. I think this video will help explain some of these things: kzbin.info/www/bejne/eHS0iqKohcx3gdU

[@inconvenientexistenlism]

@@MoneyandLifeTV “with a roth IRa you will get no immediate tax deduction, but when you retire later on and start to pull the money out it comes out tax free. So in a sense it means your dividends are coming out tax free if you think about it.” The part regarding the Roth IRA where you said, “So in a sense it means your dividends are coming out tax free if you think about it," is confusing and contradictory now. How is it “tax free” when your dividends ARE being taxed for the amount that year before putting the remaining post-taxed amount into the Roth IRA?

[@bluuegirl4]

I’m confused. My dividends are reinvested, but I don’t have more shares. Are my dividends buying me just fractional shares?

[@MoneyandLifeTV]

Hi Laetihonr windy, perhaps. Are you in a dividend reinvestment program? It is common for these types of reinvestment to purchase fractional shares, but you should be able to tell from your monthly statements where the dividends are going.

[@mattbertrand2064]

Hi! Can you please do a video on how Drip takes our investment and produces enough money to pay us such a high dividend rate. How can they be so profitable to pay this high interest rate if they are not using the next customers investment to pay you your drip? And if that is true. If the coin tanks and everyone pulls their money at the same time, will they have the funds to settle everyone's account? Do they hold dollar for dollar incase of disaster? Thanks!!!

[@retro9173]

To see the fruit-grown dividend results, I believe to have it off and manually reinvest it on you own or put it elsewhere. You still have to face uncle Sam regardless and on the cons part its a headache already in the cost basis reporting issue if you where to sell. In my opinion it's best and I was hoping he'd shared in keeping the DRIP faucet closed until you get a tax-deferred ROTH or rolled over into it then have it on, set it and forget it while it grows in that.

[@nnekaroberson6489]

I like how you broke down drips into pros and cons I didn’t know you had to pay on dividends even when they automatically re-invested. Some of my investments pay out dividends.

[@MoneyandLifeTV]

Thanks for commenting Neks. Being taxed on reinvested dividends comes as a surprise for most. The reason that it is taxed is due to the fact it is income that you "could have taken" even though you decided to reinvest it. IRS still wants their share.

[@Nabileuuh]

@@MoneyandLifeTV how about using a tax free saving account for your drips? you still need to pay taxes?

[@thatoneguy4646]

What about creating a llc & the shares are in its name. Then that would be an operating expense, meaning no taxes. This is what Buffet does.

[@luxurylife7464]

I like having the cash to buy more wonderful businesses. I like the flexibility but most important, is the opportunity cost it allows to have. Why own one great business? Buy 2,3,4,5 etc.

[@taker52]

@money and life tv what about with ETFs such as VIG VYM ?

[@MoneyandLifeTV]

I love VIG I've owned it for several years. I recommend either fund if you are looking for dividends.

[@taker52]

@@MoneyandLifeTV the weird part is I was always told don't put ETF in a taxable brokerage account . That apparently be along in a regular Ira non-taxable account. That if I wanted a ETF in the account to just invest individually in those stocks that are held in that ETF.

[@wealth_warriorstv]

DRIPs pros sound much better than the cons. All my investments are DRIP. I'll be a millionaire at 45

[@MoneyandLifeTV]

Congrats keep it up!

[@josephbattaglia3690]

To anybody who has an idea... I'm interested in investing in drips, but what I really want to do is to invest in a collection of drips. Does anybody know of a company that will choose drip stocks it deems desirable and take your money and do the allocation/investing for you? Like giving your money to a firm that invests your money and they take a portion of what you invest?. Anything out there like that? Ty

[@MoneyandLifeTV]

Hi Joseph, love the question/idea. I would think many of the large brokerage firms will do what you are describing such as an Edward Jones, Charles Schwab, etc. Only downside is the cost of doing business with them might outweigh the benefits of having them do it for you. Before proceeding make sure you have a clear understanding of the fee structure.

[@josephbattaglia3690]

@@MoneyandLifeTV thank you. I really appreciate it.

[@MoneyandLifeTV]

No problem Joseph, great question. I think you should explore this further and see what they say.

[@rjjohn2241]

Wouldn’t it be best to not have drip on and reinvest dividends into whatever stocks that have dropped so you can gain ?

[@MoneyandLifeTV]

That is how I prefer to invest, but to each their own. If the drip is in a great stock then it is the best way to go. If the drip is in a sub par stock like AT&T I think the funds could be best utilized elsewhere.

[@RENEDU2]

i clicked because of the cockatiel bird.. good job

[@MoneyandLifeTV]

Haha, thanks!

[@HansMcGruber]

Most brokerages show the DRIP and new calculated cost basis automatically and they also summarize the dividend income for tax purposes at tax time. If your brokerage doesn't, get a new brokerage. No need to manually keep track, especially if you have multiple stocks.

[@MoneyandLifeTV]

True, that is generally the case, however, be careful if you ever switch from one brokerage firm to another as cost basis information can easily get lost. I've seen this happen numerous times when preparing tax returns. Thanks for your input Hans. Yipee Ki Yay!

[@HansMcGruber]

@@MoneyandLifeTV Yes, that is a bummer. I'm looking to switch and losing that info is one of the things I'm worried about. It would seem an easy thing to port the cost basis data along with everything else, but guess not

[@MoneyandLifeTV]

Ya, if you decide to switch over to another broker/platform, I would speak with someone before doing it to see if there will be any issues in transferring the cost basis records.

[@speedsterwinston]

I assume there are no tax implications with DRIPS inside a 401k or IRA?

[@MoneyandLifeTV]

That is correct, but glad you asked.

[@jeffreysommer3292]

No, thank you. I would prefer to have a cash reserve I could use to purchase other stocks as I like.

[@ednorton164]

I think good for congress and Pelosi bad for those who are not connected and that's that. Ty for your detail information

[@moneymotivationmadness3275]

I use drip to further compound my money.

[@MoneyandLifeTV]

Drip your way into wealth my friend :)

[@johnholfelder6724]

What do I do if I’ve been in a DRIP for years and I haven’t kept track of each dividend purchase? I have no plans to sell the stock since it pays a good dividend and has been increasing it every year for 50 years. I ended the DRIP and took the stock out in certificate form, which I then deposited with my broker. My question is, was that wrong, and what do I do if I ever sell it or leave it to my heirs?

[@MoneyandLifeTV]

Your older brokerage statements should be able to provide you with a basic cost basis if nothing else. I've never seen a stock taken out in certificate form. You mean like the old school stock certificates?

[@johnholfelder6724]

Computershare gives you that option as opposed to selling the stocks. I did it because I was going for a mortgage and I wanted to deposit the shares in my brokerage account without having to sell them and rebuy and worry about capital gains. To my way of thinking I’d get better terms if I could show one account with all my stocks. Anyway I’ve always used computershare for drips and they do it at least on the stocks I’ve had.

[@dreamypop2911]

LOL i love Diablo!

[@MoneyandLifeTV]

Hi Dreamy Pop. I just got back into playing it. You certainly will be seeing more diablo 2 footage intertwined in future financial videos ;) I gotta try to lighten up these boring financial topics haha.

[@lovemadalyn]

SO HELPFUL. Thx youuuu!!!!!!!!!!!!!

[@MoneyandLifeTV]

Thank you! really glad you enjoyed it.

[@dworkx1]

I don't like auto buying at a higher price when I can wait to buy lower later.

[@MrItsmeflorence]

What company sell drip stock directly to investors. How will you contact the company like Macdonald and J and J can you give their telephone

[@MoneyandLifeTV]

Hi Florence you would need to inquire through your broker for this information.

[@fvm9576]

Most broker firms like etrade td ameritrade, etc support DRIP programs and sell partial shares. Check with them or look around on the website usually easy to find. What hes talking about in the video is when you directly buy stocks from the company which has it's benefits and drawdowns for example. You have to keep track of 20 stocks at 20 diffrent places. I rather have them all in one account for example etrade and don't care about the extra fee.

[@magicman2824]

I believe in order to drip it really is meant for a stock that you look to hang on for 20 years plus and even longer. A stock you invest in and don't trade ( Apple, Microsoft etc.) Will give you the ultimate returns.

[@AndyNick211]

Many of your cons are eliminated by a broker such as M1 investing. Allows you to reallocate your dividends to a diverse spread of companies automatically

[@MoneyandLifeTV]

M1 is pretty damn cool, not going to lie :) Excellent point.

[@markru2]

@@MoneyandLifeTV M1 investing vs Drips? Have you done a video of that to exlain the pros and cons? I have been trying to decide which is better to do buy individual stock with drips or use M1 finance.

[@wade5544]

What about a DRIP with a ROTH?

[@fuzzylumpkin8030]

I think you got a sub

[@MoneyandLifeTV]

Much appreciated! I will likely have more investment videos in a few months. Right now focusing on tax since that is my specialty :)

[@zacharywissinger3996]

Seems like the cons outweigh the pros. Unless the companies discount on shares outweigh the tax implications of turning dividends from qualified to normal, I don’t see any upside.

[@christinegallo7818]

😮

[@ahmedxh]

Can’t you stop the plan at some point?

[@MoneyandLifeTV]

Hi Ahmed, absolutely. You can drop the DRIP, but make sure there aren't any restrictions. However, that being said I believe you could stop reinvesting the dividends whenever you wanted.

[@ahmedxh]

Thank you for taking out the time to reply. Now I struggled to calculate the return and the dividend amount after 5 years. Is it possible?

[@brianlewis9665]

D2 Remake!!

[@fitimimami8771]

What about “Silent DRIPS”?

[@MoneyandLifeTV]

Hows it going Fitim? I've never heard of a silent drip (At least I don't think I have) please explain.

[@fitimimami8771]

Money and Life TV , Share buybacks ? www.forbes.com/forbes/2010/0913/markets-william-baldwin-investment-strategies-silent-dividends.html

[@MoneyandLifeTV]

Fitim, thanks for sharing this is very interesting. I never realized share buy backs were considered "silent dividends" but it makes sense. Over the past decade numerous companies have been implementing share buy backs, and it has worked out quite well for most companies and the investors involved. Appreciation with no immediate tax hit, doesn't sound bad to me.

[@craigmyers9186]

doesn't Stash and robinhood keep track of dividends, I am investing this year on both for the first time (since the beginning of the year) and you are making me nervous about tax time (I use H& R and they charge by the form ) I am imagining it will all be in one document, like "here's the dividends that were re-invested on line 12, etc) I have not kept track of dividends re-invested. I understand i may have to pay but the record keeping i thought was done, have you ever seen Robinhood's or Stash's documents?

[@MoneyandLifeTV]

Hi Craig, no worries. It all should be included on your 1099-B when you receive it, but certainly look at it closely and make sure they have gotten right. More importantly keep these records in a safe place so you don't lose the "Cost basis" history of the share repurchases incase you sale the stock at some point in the future. Other than that you should be good to go. Thanks for watching Craig :)

[@craigmyers9186]

thanks, leave it to me to over-complicate it, also i heard Robinhood uses FIFO first in first out when you sell, if you bought Shopify (or even a DRIP) in 2012 at 45.00/share and then kept buying more and more all along even until it hit 145.00 a share in 2018 and then you sell some of it, Robinhood always sells/starts with your initial share lot (the 45.00) not the last cost meaning you pay the whopping tax on 100.00 capital gain not the smaller gains on later buys nearer 145.00 while other brokerage firms let you choose which lots to sell, do you think bigger online brokerage firms like Computershare or EQ are better than the new upstarts like Robinhood, Stash or Acorn ...in other words are you willing to recommend a firm? Robinhood doesn't charge for trades but neither do DRIPS like Exxon or Abbvie and many others through computershare

[@MoneyandLifeTV]

I didn't know that about Robinhood, bummer! I'm aware of compushare but do not know how their fee structure operates. Have you looked into Ameritrade or E-Trade? Even Merrill Edge may be an option. You should be able to do DRIPs through those platforms and I think you will have more options in terms of how your stocks are inventoried for tax purposes (Lifo vs fifo). Something to look into.

[@SkyNet1506]

I just bought some KO and realised their DRIP plan is horrible 😭

[@MoneyandLifeTV]

No worries, it shouldn't be too hard to get out of.

[@Nycuberdriver]

Wow tax on drips. Fml.

[@MoneyandLifeTV]

Yep, for that reason I suggest doing as much of your dividend investing as you can in a Roth IRA

[@deadleague3618]

Money and Life TV what are the taxes on Drips of a Roth IRA?

[@estebangalaz1952]

IRS should come with an education !!!!!!

[@MoneyandLifeTV]

Couldn't agree more Esteban, or our education system should take time to teach us about the IRS.

[@yehudawachs9693]

If you have a drip account on the s&p 500 then you don't have the problem of diversity

[@justinegan3883]

Can't you just do your drip plan in a roth ira and avoid all those tax cons?

[@MoneyandLifeTV]

That is true, great point. That wold work just fine.

[@youknowwho6568]

you lose liquidity in a DRIP plan

[@MoneyandLifeTV]

I think a little bit. It just takes a little longer to get out of the DRIP as far as I'm aware of before you can sale. Not sure how long, but I don't think you can instantly sell stock as quickly compared to a stock not on a DRIP.

[@JesusChrist5000]

Now that i hear the tax ramifications of DRIPS, I am even more convinced that crypto, gold, and silver are better investments than stocks. Over the long term gold and silver have outperformed the stock market. One ounce of gold in 1971 was 35 dollars. Now that same ounce is 1840 dollars. That's a pretty good gain over 50 years. . Precious metals are simple , in your hand, no counterparty risk, and can be bartered.

[@TheYaq]

CON TIME ... INVESTING TAKES TIME

[@TheYaq]

ok it was con 4

[@samwayne8961]

Mark Zuckerberg is a billionaire and he's got no drip