Let's say you invest in Bob's Oddities, Inc., using DCA. One week, you invest $6. That week, the price for a share is $3. You've bought 2 shares. The next week you again put in $6. This time, the stock price is $2. You've bought 3 shares. Now you have 5 shares for $12--about $2.40 per share on average. But what if, on the first week, you had invested all $12? You would have had only 4 shares, each at $3, for the same money. DCA pays off!
Now you invest in Sarah's Whangdoodles, Int'l. You arrange to follow the DRIP plan in investing. Let's say the stock just happens to give 10% yield every year. You buy 10 shares at $10 each (we'll keep the stock price constant, and assume yearly compounding to keep things simple). At the end of one year, your $100 in stock has yielded $10, with which you can buy one more share. The chart below shows DRIP after some more years:
|Amount Invested Plus Yield||Dividends||New Shares Purchased||Total Shares|
|$110||$11.0||11.0 + 1.1||12.1|
|$121||$12.1||12.1 + 1.2||13.3|
|$133||$13.3||13.3 + 1.3||14.6|
After 8 years, you have $214.4 worth of stock, whereas without DRIP, you would have had $180, a $34 difference!
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