One method which can drastically increase your return in the stock market is called drip investing. Everyone who is holding onto their stocks for the long term can benefit by checking out this strategy.
Everybody knows what dividend investing is, you simply go out and buy some dividend paying stocks and then hold onto them for the long term. You definitely benefit from the monthly cash flow, but there is a way to increase your return even further.
This powerful way to increase your returns is called drip investing and what it is is simply a dividend reinvestment plan. For instance say you made $20 in dividends one month, well you could always take that $20 and spend it, or you can have it automatically reinvested into the company.
If the dividend is reinvested audomatically it will be able to grow and multiply into more and more dividend producing shares.
Just to give you an idea of how this technique can work so well when compared to simply buying and holding here is one example. Say you invest $1,000 into stock XYZ. The stock pays out a 5% dividend and has an average return of 10% which is around the average stock market return.
If you simply buy the stock without doing any kind of drip investing on it then after 10 years you would have about $2,963. Also remember that some of that would be from dividends you would have recieved, so you may have already spent some of the money and would actually have a little bit less.
On the other hand had you bought the same stock with the same $1,000 and decided to use a drip investing on your investment you would have $4,045after those same 10 years, and because you haven’t spent any money that would be the full amount in your account.
So if you do not need or want the extra cash flow this strategy can drastically increase your long term gain on your investment.
