Seeking Alpha
Long only, value, dividend growth investing
Profile| Send Message|
( followers)  

As you may know, I'm writing a series on what I've learned so far on my road to retirement. Last time, we started off the series with "Start Investing for Retirement Early," so that you can learn from your mistakes, and have plenty of time to recover from them. I also gave examples on my major investing mistakes.

The second thing to be aware of is that investing is another world of knowledge if your discipline is in something entirely different, such as mining or computers. For someone like that who is starting out to invest on their own, it can get overwhelming real fast. Where do you even start?

Start Small by Learning a Little Every Day

When I started out "investing," I followed a stock for a few weeks, and I noticed how it seems to trade within a range. So I set a limit to buy it at a low point and then sell it at a high point. This "strategy" worked, until it didn't. That is, it broke out of the range. Of course, when that happened, I didn't know what to do, especially if the price broke at the bottom range, and the stock was heading lower. Of course, as mentioned in the first article, I later learned about valuations, which indicated that even though a stock is at a higher price, doesn't necessarily mean that it's more expensive than when it was at a lower price. It's critical to note that I didn't learn about valuations until a couple years later. What I'm trying to get at is that you cannot learn everything in a day. Heck, not even a month or a year. Learn in bite-size, and slowly build on your previous knowledge. Some concepts might only stick after you've read multiple articles on the same subject, and various examples.

Start Small by Investing Minimum Amounts

Whatever you're investing in, invest in small enough amounts initially, especially if it's something that can cause the principal to go up and down like stocks. It is easy to let emotion take control, and you might buy or sell at the wrong time. Doing it in small amounts lets you get a better hang of it (mentally). Then, slowly increase the amount of money you're putting in. Learn as you go. If you're like me, I'm one who learns best by doing. For me, that's putting real dollars into investing-quality dividend-growth companies. If you're the conservative type, consider observing what other investors who align to your investing style are doing first. For example, some folks in the "Dividends and Income" category post the progress of their dividend growth portfolio. As a dividend growth investor, it is educational and insightful to read such articles and take note of their progress. A couple of such popular authors include David Van Knapp (his latest portfolio update article), and David Crosetti (his latest portfolio update article).

Start Small by Investing Enough so that you can DRIP

Once you've singled down a company that has been consistently increasing its dividend, and has a general uptrend of growing earnings, you can think about a DRIP program. There are a several ways to go about it.

1) Computershare

If you only have a hundred dollars to invest per month, you might consider buying shares through Computershare and reinvest dividends automatically so in time, compounding will do its magic for you.

  • Here's a list of companies that offer DRIP plans through Computershare.
  • You can also choose to apply filters such as finding companies which, has
    • Automatic Bank Account Debit, and
    • No Purchase Fees

Tim McAleenan Jr. provides a DRIP investing guide in his article on "How To Actually Invest Only A Hundred Dollars Per Month."

Using Computershare you can essentially start with 1 share to start compounding because it allows you to buy partial shares via dividend reinvestment.

2) Brokerages that offers synthetic DRIP

I started using the online investing platform of my bank, which I later found out only offer synthetic DRIP. That means I can only reinvest dividends automatically if it's able to purchase a full share. What's left is paid in cash. I did think about opening accounts elsewhere that offer full DRIP, but since I like simplicity, and having everything in once place, I've decided to stick with my bank. That is a personal choice for every investor. So, if you're starting out, and you don't have a lot of funds to work with, you might want to research for brokerages that offer full DRIP.

3) Brokerages offering full DRIP

Some brokerages of course offer the full DRIP. Popular ones include Vanguard, Fidelity and Sharebuilder.

In Summary

Learning in small increments day after day will only build on your investing knowledge. Then, comes the learn-by-doing. That is, putting real dollars to the test. One can start small by investing small amounts in dividend (growth) companies and reinvesting dividends via dividend reinvestment plans.

Source: Retirement Tips Series: 2 - Don't Be Overwhelmed: Start Small