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round lot musings

April 23rd, 2008 at 03:11 am

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One of the little known concerns of dollar cost averaging and the dividend reinvestment program is figuring out when to stop.

In a matter of months I will have at least 100 shares of KO, in other words, the "round lot". It used to be that you couldn't buy stocks from a broker in ones and twos; you had to buy a round lot of 100 shares at a time. It made the math a lot easier. Spreadsheet programs really made the drip feasible. Big Grin

I've been musing about whether to quit at 100 shares, quit for awhile because the price is just a tad rich (darn lucky that KO was in the 40$ doldrums for several years), continue until the dividend re-investment itself will buy the shares, or never stop.

Never stopping is the least appealing. I'd like to stop because I'd like to start another drip; actively investing in 3-4 drips is about the edge of my budget and attention. (I follow about 10 others passively, no problem there!) 100 shares is nice and round, however it never be exactly 100 shares - everything is calculated to 4 decimal points. It will be awhile before the dividend reinvestment dollars coming in quarterly will fully pay for what I put in every month. About 8 years at present prices.

No right answer here, just musing. I'm actually excited about knowing that I'll have 100 shares of something.

4 Responses to “round lot musings”

  1. Broken Arrow Says:

    Wow, I think that's terrific, and I wish I had a round lot of... any decent stock really, but especially something sweet like KO. Big Grin

    As for whether to continue or switch tracks.... Well, that certainly is a good question....

    What are you alternatives, by the way? I guess if I was in your situation, that's what I would look at anyway.... That and your personal financial situation. Otherwise, no sense adding more paperwork to your tax filing.

    Either way, a very nice, round little problem to have. Big Grin

  2. Petunia Says:

    Do you mind if I ask a question? Is "drip" an acronym in this case or is it a word that has a meaning?

  3. baselle Says:

    Its an acronym, Petunia. Drip = Dividend Reinvestment Program. What you do is buy a share of a company whose stock pays a dividend, deposit it with the company's transfer agent (bank usually). You can then send money to the transfer agent, who buys more stock with it, and when the stock pays out the quarterly dividend, the transfer agent also buys more stock with it. Its a little complex describing the set up, but once its set up, it has two advantages:
    1. Usually minimal fees to invest - no trading fees.
    2. Can put in small amounts to invest - most of mine the minimum that you can put in is $10-$25.

    You can also, when you decide to retire, cancel the reinvestment part of the dividend and let the checks come to you.

  4. Petunia Says:

    Thanks for the lengthy but very clear explanation!

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