Friday, November 10, 2017

The power of DRIP and holding - Two very different strategies - Two very decent results

Examples from my Family


My mother and my uncle were both given around 83 shares each of (XOM) back in August of 1981 by their grandmother.  At the time, they were roughly trading for around $4.00 per share.  I don’t know the details of how the transaction took place, but I assume it was willed upon her death.  What I do know is (most of) the history of these shares since they changed hands to my mother and my uncle, and I do know their share quantities today.
At the time, my mother was deep into family life married with 3 kids.  My father was career Army (oddly, he was stationed in Virginia Beach for most of his career) and my mother worked, I think, part time while we were younger and later full time as we were older.  They chose to not utilize the Dividend Reinvestment Plan - DRIP, and instead used the quarterly dividend check to help maintain our family life.  We were just a standard working class family.  I don’t think we ever suffered and I don’t think we ever had more than we needed.  They have always made decent money and still do.  My dad still refuses to retire from his post-military career.  

My uncle married and him and his wife moved to DC to work at various (never named - couldn’t tell) employers, had no kids, and chose to take advantage of the DRIP.  They have always invested and made decent money.  Luckily, for the purpose of this comparison, they never added any more money towards further investing in (XOM) until March of 2005 where he stopped the DRIP and chose to instead invest the dividends from (XOM) into other holdings to better diversify the weight in his portfolio.  So this real-world comparison shows how their respective shares faired taking these two different routes over 24 years of holding this particular investment.

Through the various splits and the merger with Mobil, they’ve both realized increases in share quantity.  My mom now has 996 shares with no DRIP.  My uncle has 2264 shares leveraging DRIP.  His shares more than doubled by reinvesting the dividends.

This real-world case shows 2 very different results, but both cases show that good things happen in either plan if held long.  My mom’s 996 shares doing nothing and getting that extra quarterly bonus ain’t bad.  My uncle’s 2264 shares without the quarterly bonus ain’t bad either!

The lesson here seems to be to invest early and hold long.  DRIP also helps, but time seems to be the number one factor in the investing world.

Do you agree about time being a HUGE factor in investing?  What other factors do you see as significant?

2 comments:

  1. Totally agree. Time is a huge factor. But I am a HUGE fan of the power of DRIPs and reinvesting those dividends. Albert Einstein said that compound interest is the eight wonder of the world. DRIPs are a great way to experience the power of compounding and exponential growth. But, there is no one size fits all approach to investing and there's nothing wrong with turning off the DRIPs if a person feel that that is the best thing to do in their situation. Good post.

    ReplyDelete
  2. DP,

    Thanks. It was interesting to see the 2 different approaches. I'm liking the DRIPs too.

    Brian

    ReplyDelete

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