When I started dividends investing in 2012 I had no goal or strategy and I was purchasing stocks with every penny I had. It was long before I realized how futile way of investing this was. Whenever I received a few dollars in dividends or contributed $50 to my ROTH IRA account, I immediately invested that cash into a dividend paying stock.
It was tempting as I hate my cash sitting in the account doing nothing. I wanted every penny to bring in the dividends.
I didn’t see how expensive that was.
For example, if I purchased a stock for $44.00 a share, I got hit by $9.95 commission. Such transaction got me into a staggering 22.61% loss! The cost basis of such transaction was immediately $53.95 a share.
The stock would have to move from $44.00 a share to $53.95 a share to just get break even. A horrible deal, right? And yes, I was doing that!!!
Over time I found that an acceptable amount to invest is at least $1,000 a transaction or of course more if you have more. But a picture of $800 sitting in my account waiting until I save another $200 to be able to invest and doing nothing was painful. To me this wasn’t acceptable. Mainly, at times when saving another $200 could take me a few months (at some point I could only save $50 a month!).
So, what to do if you can save only $50 monthly and you do not want your money sitting in the savings account, making puny 0.90% or in your brokerage account making 0.001% when you can make 3%?
A solution could be investing into commission free ETF paying dividends. To me, RWX REIT commission free ETF is the answer to that question. Of course, you need to verify with your broker whether they offer a commission free ETFs and which pay dividends.
RWX is one which does that. I can buy a single stock and pay nothing on top of my purchase price and the fund pays 2.9% annual dividend. Now, anytime I receive a cash or contribute to my ROTH IRA account I buy RWX. I do that as long as I save $1,000. Once the total market value of RWX in my portfolio is $1,000 or more, I sell shares of RWX and buy my desired stocks. A few weeks ago I used this strategy to purchase COP stock.
Dividends received
Last week, I received dividends from the following stocks:
AGNC American Capital Agency $31.02 |
MA MasterCard $2.56 |
These dividends increased my free cash in my account to a level allowing me to buy one share of RWX.
RWX new purchase
For tomorrow (Monday 11th, 2015) I placed a buy order to buy one share of RWX. After the purchase, I will own 14 shares and my current market value will be $579.28. I will be half way to saving the desired $1,000 limit for a new stock purchase. While waiting to save the rest, I will collect 2.9% dividend.
RWX is not a dividend investment to me. It is a cheap saving vehicle, since I do not use a DRIP.
Why I do not use the DRIP?
I want to be free in choosing my next stock purchase and use all collected dividends and contributions to do that. With a DRIP, I will be limited to investing contributions only. And I do not want that.
What do you think about this strategy? How do you deal with little cash in your account? Do you invest it or let it sit until you accumulate enough to buy a new stock?
We all want to hear your opinion on the article above: 4 Comments |
Recent Comments