Robinhood introduced DRIP, Recurring and Fractional investing. Everything you need to know.

Robinhood started a revolution by providing commission-free stock and ETF trading. In 6 years, Robinhood attracted over 10 million users to its trading platform. It provides crypto, options, stock, and ETF trading.

Are commissions that bad? Who wants to pay the fee, I don’t.

Every time we buy or sell a stock, we have to pay a $5–$10 commission. It’s a big chunk of change for small investors. If you invest $100 every 2 weeks. End of the year you end up paying $156 in commission fee for a $2600 investment. That’s 3 weeks worth of savings went to commissions. If we made a 6% return that year after fee our effective gains are zero. Commissions are bad.

What is DRIP investing?

DRIP is a Dividend Reinvestment Plan where investors don’t get their quarterly cash dividends. The dividends are reinvested into the company’s stock.

A dividend is a cash payment made to the shareholders by the company. The dividend yield is the ratio of cash to the price to the cash.

If you are a longterm investor in a company, get into DRIP investing. Rather than collecting a few bucks a quarter, it’s better to invest those returns into the stock longterm and have them grow.

Let’s run some numbers.

Choose a household company with a strong history of dividends. Invest $10K for 10 years into a DRIP account and regular account and see where they stand.

I chose Johnson and Johnson stock symbol JNJ to run the experiment. JNJ is in the market for over a hundred years. They are consistently paying out dividends.

The gain is over 11% by enrolling in the drip plan. The number of stocks owned increased to 224 stocks with dividend reinvestment. We started at 165 and bought 59 stocks by reinvesting dividends.

Note: Dividends are subject to long term capital gain taxes. Taxes are owed for the dividends generated by the DRIP.

Recurring investing -Habits matter

Trading platforms allow investors to set up a recurring deposit into their brokerage accounts. The idea behind this is to invest a portion of a paycheck every time you get one.

Out of sight out of mind. If money is not in your checking account, you can’t spend it. Successful investors invest regularly so they can build a large portfolio.

Coming up with $10,000 to invest in markets is hard for most people. If you can invest $500 bi-weekly by the end of the year, the portfolio will have $13000 invested plus some gains.

Fractional investing in under a minute.

Ever thought of buying Amazon or Google stock? The price of a single Google stock is over $1300 and amazon stock is over $1700. It’s hard for most people to invest in these companies.

Saving $500 a month to buy google Stock takes 3 months. Until we have $1300 all the money sits idle in the account. It’s lost time. That money could have earned a decent chunk of change if invested.

Fractional investing allows us to buy .38% of google stock when we have our 1st $500. The dollars in the account are invested as soon as they are available. It allows people to buy stock whose price per stock is over the roof.

How to take advantage of all 3 features?

FYI: I’m not a financial planner.

I love ETFs (Exchange-traded funds). S&P500(VOO), Total stock market(VTSMX), and Emerging market fund(VWO) are some of my favorite ETFs.

If you don’t know what stocks to pick, start with the S&P 500 ETF. This fund is made up of the 500 biggest companies in the US.

Yes, it’s like fractional investing. This fund has fractions of the top 500 companies in it.

Here is the plan. Keep it simple stupid.

Set up recurring investments of a set dollar amount to your brokerage account. Then set up a DRIP with your favorite stocks or ETF, which are fractional investing friendly.

Then set up how much you want to invest in each stock/ETF every month.

50% VOO, 30% VWO, and 20% VTSMX. This mix of ETFs has good exposure to the US and international markets.