How to Start A DRIP Portfolio in College
There are many ways to invest, and sadly they all contain some measure of risk. The DRIP portfolio is one of the safest and most steadfast ways to invest, all while being affordable to college students.
By Luke Stellick — March 10, 2023
There are many advantages to investing early on in life. It can allow for a pool of wealth to slowly grow, aid in financial security throughout life, and be used as a resource for retirement. The only issue with investing is that it's hard to know which method to use or where to start. Making sure you're investing in the right stock is the most challenging part, and if you're never taught, buying stocks might seem too large of a risk. That is where the DRIP portfolio comes in handy. DRIP stands for "dividend reinvestment plan" and is a style of investment portfolio that allows for slow but steady gains, which grow exponentially. The risk is low so long as you spend the time to build your portfolio correctly, making it a great starting point for college students.
Allocating Proper Funds:
The only downside to investing, much like anything in this world, is that it costs money. So it is important to set aside a certain amount of money to begin investing. This amount doesn't need to be large. Even one-hundred dollars is enough to start, and many financial companies allow you to create an account without any initial investment.Once you have an account, the next step is building up that initial investment amount. There are plenty of articles and websites in existence that help with creating a budget a setting aside funds for everyday life. This is the easiest way to begin setting aside funds to invest. A good rule of thumb for beginner investors is every paycheck after the necessities are paid for, set aside ten percent of what is left. This allows you to have a relatively steady source of investment funds that you can use to work up toward an initial investment.
Beginning to Invest:
You can now invest with a set of funds. As a college student, it can take a lot of work to figure out where to begin investing. Gathering the money is only half the battle. Finding the right company is just as hard, if not harder. That is where the DRIP portfolio comes into play. The key word in the DRIP acronym is dividend. A dividend is a stock percentage paid back to the shareowners from the company's profit. It is usually paid quarterly and is the main focus of starting a portfolio in college. Once you understand what you're looking for and take the time to research a good fit for your money properly, you can invest without having to worry. The actual process of investing is relatively simple, and most financial sites make it easy and straightforward.How to Research Companies:
At this point, you have money saved, and you most likely have figured out how to invest through your financial provider. But before doing that, you must learn how to research a company and some things to look for. As stated before, a DRIP portfolio centered mainly around dividend reinvestment. This is the number one thing you should be on the lookout for. Dividends are portrayed as a percentage, with a corresponding dollar amount next to it. Starting your research here is advised as it will allow you to save a lot of time and effort when looking for companies to invest in. Once you have found a company that you think looks promising, see what it offers for a dividend.Simply put, maximizing your reinvestments is your goal, so if the annual percentage is three and a half or less, move on. Once you have found a company that offers a decent dividend, it's time to look at its consistency. This is possibly more important than the dividend itself.
When building a stable and weatherproof portfolio, you must invest in time-proven stocks. Looking through the stock's history over a long period of time can help you decide whether it's a good fit for your goals. Having a company that has maintained a consistent stock range means that the company is focused on longevity and not solely on increasing profit. This means that the company will not constantly look for huge plays in the market to boost its revenue. This is the style of stock you want to go after, with a stable range and sizable dividend.
A good tip for finding this style of stock is to look at the world's needs. Like how you want to find a stable stock, looking at steady and constant worldwide needs is an excellent place to start your research. For the foreseeable future, the oil will be in high demand worldwide. You can also look at food, whether it be crops or large wholesale distributors. Even the unsavory aspects of the world can provide huge markets, with smoking being one of the most prominent and steady. Yet another area you can focus on is electrical power companies, as they are gaining traction in the economic market. All of these are sectors of the market that will have companies that fit your needs. However, the most essential part is still the dividend percentage and ensuring that the stock is not focused on constant appreciation but instead centered around stability. Starting college is like turning the page to a new chapter in your book of life.
Starting to invest is the same way as beginning the financial chapter of your life. If you have just entered college or are close to graduating, the sooner you learn to safely and responsibly invest, the better the outcome will be. There are many ways to invest, and sadly they all contain some measure of risk. You're putting your money on the line in hopes that it will grow and give you a secure future. However, the DRIP portfolio is one of the safest and most steadfast ways to invest, all while being affordable to college students. Through simple research and careful planning, investing in college can set your future on the right path.
Luke Stellick
Born in Palos Heights, Illinois, Luke Stellick currently lives in Wauwatosa, Wisconsin. A graduate of Wisconsin Lutheran College, he earned his bachelor's degree in history and continues to learn and read about history as a hobby.
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