Stocks — DRIPS

Radio Transcript, 2 minutes 30 seconds, for use during week of Oct. 1.

Description: Penny and Susan discuss DRIPS and mutual funds

Announcer: Invest Wisely comes to you from Iowa State University Extension through a grant from the Investor Protection Trust, providing investor education on the web at: investorprotection.org.

Susan: Penny, Ira told me that you’ve been talking about different types of stocks and how these different categories have different investment risks.

Penny: That’s right.  For example, while income stocks pay a high percentage of their earnings in dividends and are generally low or moderate risk investments, growth stocks are typically in new or fast-growing industries and usually have more volatility.

Susan: One of my investment goals--saving for a comfortable retirement--is a long-term goal.  Does it still make sense for me to consider income stocks?  I’m interested in having some stocks in low to moderate risk categories, but I don’t really need the dividends now.

Penny: One thing to consider is reinvesting any dividends to purchase additional shares.  Some companies have dividend reinvestment plans, known as DRIPS, which allow you to automatically reinvest your dividends and purchase additional shares.

Susan: That sounds like something I might be interested in.  The dividends could be used to help me reach my investment goal.

Penny: That’s right.

Susan: I’m still concerned that I might not have the skill or time to select and monitor individual stocks or enough money available for investments to allow me to diversify adequately.  Do I have other options?

Penny: You might consider mutual funds, which pool money from many investors to purchase a basket of stocks.  Funds have different objectives--growth, income, a combination of the two or many other objectives.

Susan: So I could still choose funds based on my investment goals and objectives?

Penny: Yes.  You might be interested in something like index funds , which are made up of the stocks reflected in a  benchmark index like the Standard and Poor’s 500.  These can be a good choice for people who want some exposure to the market, lower costs,  and aren’t interested in managed funds that try to beat the market.  Historically the return of the S&P 500 has been around 10 to 11 percent.

Susan: Thank you, Penny.  Once again, you’ve been really helpful.  I’m sure I will be back again with more questions.

Penny: You’re welcome.  And remember, for more information, visit the ISU Extension website at extension.iastate.edu and look for ‘Invest Wisely.’