# 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.
\$50,000

Power of Compound Interest

\$40,000

Regular Interest Compound Interest

\$41,161

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

\$10,000 1 6 11 16
Year

21

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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

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

\$1,000,000

Regular Interest Compound Interest Compound Growth

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

1

6

11

16
Year

21

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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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