Let Your Money Work for You

The Smart Investor’s Secret Trick to Retiring With Millions
“I’ve fallen in love with DRIP investing — it’s about as simple as investing gets. If you’re an investor who likes to set it and forget it, DRIPs are a great weapon to have in your financial arsenal.”
— Sara, GetRichSlowly.org


Let Your Money Work for You:
The Smart Investor’s Secret Trick to Retiring With Millions
There is a famous grade-school word problem that goes something like this: Which is worth more after 30 days?: a. A crisp $100 bill on the 30th day b. A payment of a single penny on day one, which doubles every day until the 30th. After a bunch of scribbles and crossed-out multiplication tables, most students circle “b” — the correct answer. To every fifth-grader’s amazement, the compounding penny would turn into $5,368,709.12 in 30 days and the $100 would still be just $100. Compounding is truly the smart investor’s secret trick. Albert Einstein claimed that compounding was the “most powerful force in the universe.” That could be why it’s probably the most confused concept of investing. People know that compound interest is a good thing, but they usually don’t realize how truly powerful it is. With a few examples, it actually becomes quite clear. Imagine starting two savings accounts on your 30th birthday. One pays a 5% interest on the initial principal of the account. The other compounds its interest. Starting with $10,000, let’s see how big of difference we are looking when you turn 60. As you can see, after a few years, that interest rate grows larger and larger, which brings in more and more money every year. It takes 21 years for your first double with regular interest, but only 16 with compounding interest. More impressive than that, compound interest actually quadruples your investment within 30 years, and regular interest doesn’t even triple it. So obviously, compounding is an important tool for investing. But here at Lifetime Income Investor, we want you to think about how this applies to dividends and compounding through dividend reinvestment. Since we only like companies that grow their dividends, we need to look at what that extra catalyst will do to the chart on the following page.

Power of Compound Interest


Regular Interest Compound Interest


$30,000 $24,500 $20,000

$10,000 1 6 11 16



As you can see, a savings account that compounds your interest is better than one that doesn’t, but a company that grows its dividend while you reinvest yours is even better…and not just a little better. A whopping 132 times better. Instead of retiring with a lousy $40,000, you’d be sitting on $5.4 million. Now, finding a company that grows its dividend 10% every year for 30 years is not an easy feat, but that’s our job. Reinvesting your dividends is yours. We aren’t going to just leave it like that. We want to make it even easier on you. That’s why we look for a special type of plan that helps you. Let me explain… 1
Over Please…

A dividend reinvestment plan (DRIP) is simply a way for a shareholder to reinvest their dividends back into the company without paying commission fees. The company, or a third-party transfer agent, takes care of all the transactions. You don’t even have to leave your couch. Basically, the company realizes it’s in both your and their best interest for you to reinvest your dividends back into the company. It helps the company’s share price, as well as gives the company stability to continue to grow its dividend.

Compounding With Growth
$10,000,000 $5,428,527


Regular Interest Compound Interest Compound Growth

$$100,000 $41,161 $24,500 $10,000







As you can see, DRIPs are powerful tools for income investors. But it gets even better. Say you want to pay some of your bills with the dividends. No problem…Many companies also allow partial reinvestment through DRIPs. So you can decide to receive a check for 30% or 40% of the dividends and put the rest back into the company’s stock. There’s more to DRIPs than just that. Some have direct stock purchase plans (DSPPs). These allow you to buy shares directly from the company — once again, bypassing brokers and their nasty commission fees. Many companies that offer DSPPs also offer optional cash purchases (OCPs). Some even offer a discount for this option. That means you can buy shares of certain companies through their DSPPs for anywhere between 1–10% off. That’s like buying shares on sale, and it’s usually on a set schedule, so it’s an extremely cheap and easy way to invest for retirement. While the acronyms may get a little confusing, don’t worry. When we come across a company that offers any of these plans, we’ll make sure you know your options. Not all companies offer these perks, but the list is growing. It’s, obviously, a win-win. The extra buying helps increase the value for the company, as well as the shareholder. Of course, nothing is exactly that easy… To get enrolled into a DRIP, you have to be a shareholder in the first place. For most companies, it takes only one share to enroll. But it does get slightly more complicated than that. You have to be the physical shareholder. Most brokers hold their clients’ shares, which ordinarily makes it easier on everyone. But in this case, you need to actually send your shares into the company offering the DRIP, or their transfer agent. There are a number of ways you can get hold of a stock certificate for a single share. If you want to enroll in a DRIP from a company that offers a DSPP, you are in luck. Obviously, with a DSPP, you can buy a single share directly from the company. You can find out if a company offers a DSPP on its investor page or in its DRIP prospectus. We’ll tell you when one of our recommendations offers such a plan. The second choice would be to buy a single share from a broker. It isn’t the cheapest way to go about it, but it’ll work. You can use any typical discount firm such as those listed in Income You Can Count On. After you buy a single share of the company, you have to have the broker send you a stock certificate. You will be charged somewhere around $25–50 for that. It will also take a few weeks to receive the certificate. Another option to get your first share of a company is to use First Share. First Share is an organization 2

based around DRIP investing. It is basically a group of investors who own shares of companies that offer DRIPs. The investors in this group agree to sell a single share of stock to other members. So you’d have to become a member. Once you are a member, you are obligated to sell one share of each stock you purchase through First Share to another member. It costs $4 for a referral (from a buyer to a seller) and a $7.50 transaction fee (from a buyer to a seller). But you get the transaction fee recouped once you become a seller, as you are obligated to do. You can contact First Share at (800) 683-0743 or visit the Web site at www.firstshare.com to read the prospectus. It’s important to remember that all DRIPs are different. Reinvesting Wal-Mart shares is very different from reinvesting McDonald’s shares. Here’s a short list of just a few of the more than 1,000 companies that offer DRIPs. This list isn’t complete, and we aren’t recommending these companies. But a good way to familiarize yourself with DRIPs and the differences between them is to glance through a few of these companies’ prospectuses. You can find them on the companies’ investor relations pages.

The DRIP Short List
1. Exxon Mobil Corp. (XOM:NYSE) www.exxonmobil.com 2. General Electric Co. (GE:NYSE) www.ge.com 3. China Mobile Ltd. (CHL:NYSE) www.chinamobileltd.com 4. Microsoft Corp. (MSFT:NASDAQ) www.microsoft.com 5. PetroChina Co. (PTR:NYSE) www.petrochina.com.cn/ptr 6. Brazilian Petroleum Corp. (PBR:NYSE) www.petrobras.com 7. Wal-Mart Stores Inc. (WMT:NYSE) www.walmartstores.com 8. Procter & Gamble Co. (PG:NYSE) www.pg.com 9. Johnson & Johnson (JNJ:NYSE) www.jnj.com 10. BP Plc (BP:NYSE) www.bp.com 11. AT&T Inc. (T:NYSE) www.att.com 12. International Business Machines (IBM:NYSE) www.ibm.com 13. Chevron Corp. (CVX:NYSE) www.chevron.com 14. Total SA (TOT:NYSE) www.total.com 15. Pfizer Inc. (PFE:NYSE) www.pfizer.com

Key terms:
Dividend Reinvestment Plan (DRIP) — Plan that automatically reinvests dividends you receive from a company back into the company’s shares. Direct Stock Purchase Plan (DSPP) — Plan that lets you buy shares directly through the company. Optional Cash Purchase (OCP) — Option that lets you add more shares to your DRIP without using a broker. This option is usually on a set schedule and makes retirement investing automatic.



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©2009 by Agora Financial, LLC. 808 St. Paul Street, Baltimore, MD 21202. All rights reserved. No part of this report may be reproduced by any means or for any reason without he consent of the publisher. The information contained herein is obtained from sources believed to be reliable; however, its accuracy cannot be guaranteed.