How to get​ Started Investing for Dividends

There are many ways, but I’m going to tell you my favorite for those get­ting start­ed. Open a Stockpile account, invest as lit­tle as $5 to get start­ed, and make sure you tick the set­ting to ‘rein­vest div­i­dends.’

My Love Affair with Stockpile

Why do I like Stockpile for new investors (or investors who are get­ting start­ed mod­est­ly)?

Simple. They sup­port frac­tion­al shares and allow you to rein­vest div­i­dends, even for frac­tion­al amounts. (I also com­plete­ly love their cus­to­di­al imple­men­ta­tion, but that’s a sub­ject for anoth­er post.)

Let me take a minute to explain that, it’s dense.

What are fractional shares?

Take a stock like Apple. At the moment, it’s $175/share. At “tra­di­tion­al bro­ker­ages” (Fidelity, e‑Trade, Schwab) if you want to buy Apple’s stock, you need mul­ti­ples of the share price. Buy one share, you have to invest $175 (plus com­mis­sion). Buy two, and it’s $350, and so on.

When you can buy frac­tion­al shares, you can invest at your own pace. Let’s say you want to start by invest­ing $20/month. Well, in a tra­di­tion­al bro­ker­age you’d have to wait 9 months before you could buy a share of Apple (and it would feel “expen­sive”). At Stockpile, you could invest that $20 each month and buy what­ev­er frac­tion of a share that gets you (include in your cal­cu­la­tions the ¢99 com­mis­sion).

Even if you have $180 on hand, by buy­ing $20/month you cre­ate a habit of putting mon­ey away each month, rather than hav­ing to make a deci­sion of whether to invest or not based on how much cash is in your sock draw­er on any giv­en month.

There’s one oth­er ben­e­fit. Over the course of the nine months it would take you to accu­mu­late mon­ey to invest in that share, you’d earn (and rein­vest) three div­i­dends. It’s not a lot of mon­ey on an absolute basis (Apple pays a div­i­dend of 1.57% annu­al­ly, so the div­i­dend on your $20 invest­ment is <8¢)… but we’re work­ing on per­cent­ages. So, the per­cent­age div­i­dend on $20 is the same as it is for $20,000. And if what you have to invest is $20… you should have a way to go for it through frac­tion­al own­er­ship.

There was a sec­ond part of that sen­tence above: “allow you to rein­vest div­i­dends, even for frac­tion­al amounts.”

Let’s say you did invest $20/month for three months, then get a div­i­dend of 24¢. You can rein­vest 24¢ in Apple, even though that buys you just a frac­tion of a share. You don’t need to earn a full share price in div­i­dends before being able to invest.

One More Thing

They also have a fan­tas­tic cus­to­di­al imple­men­ta­tion. I’m not aware of any­one else doing some­thing like this (let me know in the com­ments if you do). While not ter­ri­bly impor­tant as an indi­vid­ual get­ting start­ed on their own, it’s great for parents/grandparents/aunts/uncles who want to use div­i­dend rein­vest­ing as a way to teach their kids/grandkids/neices/nephews about invest­ing/wealth-build­ing. I have Stockpile accounts set up for each of my kids.

Their app and web­site are nice, and unlike every oth­er bank I’ve ever used their noti­fi­ca­tions are clear and writ­ten to be eas­i­ly under­stood.

Common Objections

You can “trade” with Robinhood for free. Stockpile has a ¢99 com­mis­sion per trade.

You’re not trad­ing, you’re invest­ing. These are two dif­fer­ent things. All oth­er things being equal, I go for cheap­er. But they’re not equal. Robinhood has two severe lim­i­ta­tions for mod­est investors:

1. You can’t buy frac­tion­al shares
2. You can’t rein­vest div­i­dends

If I were trad­ing, I’d total­ly use Robinhood. If you’re inter­est­ed in trad­ing, you should too. You should also stop read­ing this blog… because I don’t help peo­ple learn to trade.

You can’t buy or sell at a spe­cif­ic price point, only at the end of the day’s clos­ing price.

On the sur­face, this is a legit­i­mate reser­va­tion. However, we are try­ing to accu­mu­late wealth over time not try­ing to time the mar­ket. If you’re accu­mu­lat­ing, minor price vari­a­tions that result from buy­ing at the end of the day don’t real­ly mat­ter.

Similarly, if you “have to sell this minute” you’re doing this wrong. Hopefully, this por­tion of your sav­ings can be used for long term invest­ing, and even if the mar­ket turns down, you can just accu­mu­late more.

If after 20 years of invest­ing you’ve accu­mu­lat­ed a lot of wealth, for $75 you can trans­fer shares into a tra­di­tion­al bro­ker­age as you pre­pare to sell, and sell from there in a more tra­di­tion­al way.

End Notes

This post could be 10x as long as it is, and still not be exhaus­tive. Everyone has an opin­ion, and many are right (giv­en the right con­text).

You cer­tain­ly could get start­ed using a tra­di­tion­al bro­ker­age that sup­ports rein­vest­ing. Just make sure you turn on rein­vest­ing div­i­dends.

In my book, I talked about buy­ing stock direct­ly from the com­pa­nies them­selves. That still works, usu­al­ly with a larg­er min­i­mum invest­ment than Stockpile. Stockpile was­n’t around when I wrote my book, they cer­tain­ly make the whole thing eas­i­er with­out any down­side.

I’m try­ing to keep this as sim­ple as pos­si­ble so that peo­ple over­whelmed by where to start, can get start­ed in a way that helps them learn about what they’re doing. Minimizing options makes deci­sion mak­ing eas­i­er, and lets you focus on the places where deci­sion mak­ing is impor­tant as you get start­ed.

If you want to read more, I’ve writ­ten reviews of both Stockpile and Robinhood.