Last week I illuminated my biggest investment mistake ever: Puda Coal (OTC:PUDA). Puda was by far my worst buy-recommendation. But the worst mistake I continually make has nothing to do with an individual stock.
Because the worst mistake I make is one that I repeat.
You should learn from mistakes so you can avoid them in the future. Call me stubborn (as more than one boss has called me) but I constantly make the mistake of thinking I can force people to become better investors. And I fully recognize that it's a fool's errand. I can't force anyone to become a better investor. I can only point out the route.
I receive lots of questions from new investors, or investors who otherwise don't have much in the way of investment capital - and they always want to know what they should buy, how they should invest, what's a good safe investment they can own for a long time.
And my answer has always been the same: you need to learn to sock away a portion of your earnings into a dividend reinvestment plan (DRIP) of solid companies with a history of paying dividends.
And I point out this DRIP route, knowing full well that most people will ignore me. Yes, it's a boring route. Yes, it doesn't involve lots of activity. Nor will it benefit from daily attention. It can be somewhat annoying to calculate capital gains for tax purposes. And yet it's so simple and uncomplicated that most people (even inexperienced investors) feel like it's a childish way to invest.
I've given this simple piece of advice to everyone who asks. I've tried to force-feed it to my 22 year old sister - someone who has the time component of compound interest on her side.
But you don't have to be 50 years from retirement to make DRIPs work for you. Of course more time is better, but if you're not working with very much capital and you have a 10-20 year time horizon, then most of the investments in the market won't work for you - or they're much too risky.
Remember: the number one rule of investing is to not lose money.
And if you get enrolled in DRIPs at good prices, it's kind of difficult to lose money - or at least very much - and in short order, you'll begin to make money. Yes, slowly at first.
Yes, it will look like a stalactite forming - as income very gradually turns into more income. But after 5-7 years, you'll notice a very quick uptick.
Now, I'm going to make this mistake again - I guess because I'm stubborn - but if just one or two people actually take me up on my advice, then that's one or two people I've helped.
Not bad for a day's work. Well it's not quite a day's work. I've put extensive amounts of time into a must-have guide to DRIP investing.
If you're interested in a solid DRIP company, I've recommended Duke Energy (NYSE: DUK) before.
It pays a 5% dividend yield. More importantly, they're selling for a pretty cheap valuation of just under 13 times trailing earnings.
So if you're interested in Duke's DRIP, here's what to do:
Buy shares direct from Duke Energy. You won't pay any transaction fees to do so. Then, enroll in Duke Energy's dividend reinvestment plan.
(Note: if you're already a shareholder of Duke Energy, you can skip step one and go straight to step two.)
Duke Energy requires that you initially buy $250 worth of stock - without any fees added on, of course.
Or: Call 1-800-488-3853 to speak with a representative from Duke Energy who will help get you started with their dividend reinvestment plan.